Trump’s 50% tariffs may clip 1% off India’s growth: analysts

[NEW DELHI] US President Donald Trump’s additional tariffs on India will further damage the South Asian nation’s already slowing economy and shrink its gross domestic product by as much as one percentage point, analysts said.

Trump on Thursday (Aug 7) doubled tariffs on Indian goods to 50 per cent as a penalty for buying Russian oil, a move that could make exports to the US of many industries uncompetitive.

The cumulative tariffs – higher than not just those for India’s export rivals such as Vietnam, but also China – could cut outbound shipments to the US by 60 per cent and shave about a percentage point from GDP, going by estimates from Bloomberg Economics.

India’s central bank sees the economy expanding 6.5 per cent in fiscal year 2026 – same as last year and way below the average 8 per cent growth seen before that.

“The overall hit to GDP could be even higher at 1.1 per cent over the medium term” once tariffs on sectors such as pharmaceuticals and electronics are announced, wrote analysts Chetna Kumar and Adam Farrar.

Analysts see the new levies effective in 21 days hitting exports from labour-intensive sectors such as gems and jewellery, textiles and footwear, potentially halting business in these goods. The move is also expected to force India to actively scout for alternative markets.

New Delhi called the move “unfair, unjustified”, blasting Trump for singling out India when other countries are also buying oil from Moscow.

Sonal Varma and Aurodeep Nandi, economists at Nomura Holdings, said the 50 per cent tariff would be similar to a “trade embargo, and will lead to a sudden stop in affected export products”.

Low value addition and slim margins across many industries could make it hard for smaller firms to compete, they added. The US is India’s largest export destination for goods, making up nearly a fifth of total outbound shipments.

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Citigroup’s Samiran Chakraborty said exports will become “economically unviable” and “a linear extrapolation of the impact might be an underestimation”.

India’s current and capital account flows too will feel the strain, Chakraborty said. With the rupee close to its record low, the central bank may have to intervene to cushion any sharp depreciation, he said.

Citigroup estimates a 0.6-to-0.8 percentage point downside risk to annual growth from the higher tariffs.

The government does not expect the damage to be as severe.

Dammu Ravi, secretary for economic relations in India’s Ministry of External Affairs, said India will look at other opportunities if the US becomes “difficult to export (to)”, mentioning South Asia, Africa and Latin America as potential markets.

“It’s very natural for countries to look for alternatives when you are affected by a wall of tariffs in any part of the world,” he said.

If high tariffs persist, analysts expect policy support from the government and the Reserve Bank of India (RBI) to boost growth.

The RBI may undertake two reductions of one quarter-point each, on top of the interest rate cut of 25 basis points, wrote Bani Gambhir and Upasana Chachra of Morgan Stanley in a note to clients. The central bank on Wednesday kept rates unchanged, as policymakers chose a wait-and-watch approach amid tariff uncertainty.

Moreover, the federal government is also likely to pause fiscal consolidation and potentially increase capital spending to support domestic demand, they wrote.