Moneycontrol Pro Panorama | US tariffs bite India, what’s next?

Reacting to the steep, unprecedented tariffs and geopolitical uncertainty, the Indian government is pushing hard for policy reforms.

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The 50 percent US tariffs kicked off from 27th August against the backdrop of US’ hard stance on Indian imports of Russian oil and a recalcitrant India refusing to compromise its energy security. Worse, after five rounds of failed talks between New Delhi and Washington and a stalemate, it only underscores the deterioration in trade relations between the two countries.

To be sure, the immediate impact on Indian exports to the US that comprise about 18 percent of total exports is known. Analysts have estimated a 0.2-0.3 percentage point impact on the FY2026 gross domestic product (GDP) growth. Nomura estimates that about 60 percent of US imports from India will face 50 percent tariffs, which means India’s effective tariff rate will be 33.6 percent.

Importantly, apart from the direct impact of such high tariffs on the revenue and profits of these sectors, the indirect impact could be far-reaching from loss of employment in India’s manufacturing sectors and loss of market share, with the tariffs putting India at a relative disadvantage compared to Asian and other emerging market competitors such as Malaysia, Vietnam, Indonesia and even China.

Hopes of moderation in tariffs in the manner that countries such as Japan, Korea, the UK and the EU managed and brought tariffs down to below 20 percent, have waned. However, optimists reckon that the 25 percent penalty for Russian oil imports would be removed. But, India’s resolve to hold ground and protect the interest of small entrepreneurs and agriculturists/farmers is a risk to duties coming below 25 percent.

Indeed, reacting to the steep, unprecedented tariffs and geopolitical uncertainty, the Indian government is pushing hard for policy reforms. Its refreshed playbook indicates lower goods and services tax and some rationalisation to drive domestic consumption, driving renewable energy generation and engaging with other key economies such as the UK (already in place), Japan and China for furthering trade. The Monthly Economic Report (July 2025) from the Ministry of Finance, while underscoring this also states that these initiatives will take time to show results and may not fully address the shortfall in exports to the United States that may arise if the current tariff rates on India persist.

In an interview with Moneycontrol, veteran investor and chairman of Motilal Oswal group Raamdeo Agrawal said that if a US-India deal is struck within two months (25 percent tariff), it is unlikely to impact the economy and markets. “It is not only bilateral trade that impacts the markets, but India's rising economy and government's ‘arsenal of reforms’ can simultaneously boost the market sentiment,” he said.

The impact of US tariffs on India are still veiled in uncertainty. This may be one of the reasons for the prolonged underperformance of Indian equity markets compared to other global counterparts. The range-bound benchmarks, however, have led to a time correction even though valuations are yet to come down to compelling levels.

At a more macroeconomic level, Trump’s punitive tariffs on India warn of a new global order, says Manas Chakravarty in this article. The tariffs-led world marks the collapse of the US-led liberal order and the return of coercive, bloc-based imperialism. It unravels an era defined not by shared prosperity, but by national rivalry, economic conflict, and the raw struggle for power.

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Vatsala Kamat
Moneycontrol Pro