India’s economic outlook amid rising US tariffs appears stable for now, with expectations of a mutually beneficial trade agreement by the end of 2025 offering a buffer against potential disruptions. According to a report by Bank of Baroda, the projected impact of a 10% decline in exports to the US would only shave off around 0.2% from India’s GDP growth. As a largely domestic-driven economy—where consumption forms nearly 60% of the GDP—India is somewhat shielded from external trade shocks. In contrast, merchandise exports account for just 12% of the GDP, making the immediate tariff impact more manageable.
Despite US President Donald Trump’s recent indication that pharmaceuticals may also come under scrutiny, experts believe India might escape the worst effects through targeted exemptions and strategic negotiations. Aditi Gupta, economist at Bank of Baroda, emphasized that India could potentially benefit by capturing market share lost by other Southeast Asian nations—like Vietnam, Taiwan, and Indonesia—which face even steeper tariffs between 32% and 46%. India’s revised tariff rate stands at 27%, while China has been hit with an increased rate of 34% on top of an existing 20%.
Crucial sectors vulnerable to tariff hikes include electronics, precious stones, machinery, and garments. However, the report underscores that because these tariffs are part of a global hike affecting all trading partners, India’s relative disadvantage may be limited. Diplomatic ties between New Delhi and Washington are expected to play a key role in fast-tracking a trade agreement. If successfully negotiated, such a deal could significantly ease the long-term economic strain and bolster India’s position in the global export landscape.
