Mutually beneficial India-US trade deal to limit tariff impact: Report

IANS April 4, 2025 184 views

A recent Bank of Baroda report indicates that potential US tariffs might have a limited impact on India's economy. The report suggests that India's strong domestic consumption and potential trade agreements could help mitigate economic challenges. Exports to the US account for only 12% of India's GDP, with a possible 0.2% growth impact if exports decline. Diplomatic relations and ongoing negotiations may further soften the tariff's effects.

"These tariffs could be marginally positive for India" - Aditi Gupta, Bank of Baroda Economist
New Delhi, April 4: The direct impact of higher US tariffs on India looks fluid as of now and a mutually beneficial trade deal by the end of this year would limit the impact, a report showed on Friday.

Key Points

1

India's exports unlikely to be severely impacted by US tariffs

2

Domestic consumption remains strong at 60% of GDP

3

Potential trade deal by 2025 could limit economic disruption

India remains a domestic-oriented economy with consumption accounting for 60 per cent of the total GDP. On the other hand, merchandise exports accounted for only 12 per cent of GDP in FY24.

According to the report by Bank of Baroda (BoB), assuming a 10 per cent decline in value of India's exports to the US, the total impact on India's GDP growth is likely to be around 0.2 per cent.

"However, exemptions on pharma products and also the possibility of a trade agreement can limit this impact. Further, there is also an opportunity for India's exporters to gain market share from other South-East Asian countries, in which case these tariffs could be marginally positive for India," said Aditi Gupta, Economist, Bank of Baroda.

However, US President Donald Trump said on Thursday (US time) that his administration is also looking at possible tariffs on pharmaceuticals.

Prima facie, the sectors which are likely to be impacted most are electronics, precious stones and machinery, besides readymade garments.

Overall, the direct impact of higher US tariffs on India looks fluid as of now. It all depends on whether exports come down and to what extent. As higher tariffs have been imposed on all countries, the disadvantage for India could be muted to an extent, Gupta noted.

It can be seen that among major US trading partners, South-East Asian countries such as, Vietnam, Thailand, Taiwan and Indonesia have been penalised the most, with tariff rates ranging between 32 per cent-46 per cent.

Tariff rate on China has been increased to 34 per cent (on top of existing 20 per cent), while for India, the new tariff rate has been set at 27 per cent.

The report stated that given the good diplomatic relations between the two countries, the progress on finalising a mutually beneficial trade deal by end 2025 is expected to be quick, which will further limit the impact.

Reader Comments

P
Priya K.
This is actually good news! A 0.2% GDP impact seems manageable, especially if we can negotiate better terms. Our pharma sector needs protection though - hope the trade deal addresses that specifically. 🇮🇳
R
Rahul S.
Interesting analysis but I wish the article had more details about which specific electronics and machinery sectors will be hit hardest. The garment industry workers must be worried right now.
A
Anjali M.
27% tariff vs China's 34% gives us some competitive advantage at least! Smart diplomacy can turn this into an opportunity if we play our cards right. Fingers crossed for that trade deal 🤞
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Sanjay P.
Respectfully, I think the article downplays the potential impact too much. Even 0.2% GDP growth reduction affects millions of livelihoods. We should be pushing harder for complete exemptions, not just limited impact.
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Neha T.
The comparison with Southeast Asian countries was eye-opening! Vietnam at 46% tariffs 😳 This might actually help Indian manufacturing in the long run if we can attract some of that business.
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Vikram D.
Good to see economists being cautiously optimistic. The key will be how quickly we can finalize that trade deal before businesses start feeling the pinch. 2025 deadline seems reasonable if both sides are motivated.

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

Tags:
India-US Trade Trump Tariffs Bank of Baroda Aditi Gupta Export Impact
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