Trump tariffs may shave off at most 0.3 percentage points from India’s GDP, say economists

Tariff's GDP impact to be limited

US President Donald Trump’s announcement of a 25 percent tariff plus penalty on Indian imports may affect trade flows, but its impact on India’s GDP is expected to be contained at around 0.3 percentage points, economists said on July 31.

The levy—similar to the 26 percent tariff announced earlier this year on April 2 under the "Liberation Day" measures—is estimated to have an effect of 0.1–0.3 percent of GDP, as India continues to benefit from supply chain realignments globally.

Crucially, India's exports of smartphones and pharmaceuticals, which together made up nearly one-third of exports in FY25, remain exempt from these new tariffs.

“We had assumed a baseline reciprocal tariff of ~10% on India. So if tariffs sustain at 25%, then this would hit GDP growth by adversely affecting exports to the US, eroding any benefits due to trade diversion, hurting profit margins and reducing investments, and leading to job losses for MSMEs,” Nomura economists said in a note.

“We maintain our FY26 GDP growth forecast at 6.2 percent y-o-y but flag a downside risk of ~0.2pp if tariffs remain at these levels.”

The US accounts for nearly 18 percent of India’s total exports.

“Indian government studying the recent developments on US tariffs on India. Government is talking to stakeholder and taking their feedback on it. Government gives utmost importance to farmers, MSMEs, and industry,” Commerce and industry minister Piyush Goyal noted in Lok Sabha on July 31.

HSBC economists Pranjul Bhandari and Aayushi Chaudhary estimate that if the burden of higher tariffs is equally split between Indian producers and US consumers, it could shave off 0.3 percentage points from India’s GDP growth.

Others, however, suggest the net impact could be limited, given India’s comparative strength in several product categories.

“The imposition of a 25% tariff could lower India’s annualised exports by USD 31 billion on a gross basis—around 7% of total merchandise exports or 0.7% of GDP. However, gains from US tariffs on other countries could strategically increase India’s market share in some product categories,” QuantEco Research economists said.

“Overall, the net impact may be negligible, though sector-specific effects may require policy support.”

A Moneycontrol analysis earlier showed that India could gain at least $5 billion in trade from countries like Bangladesh, Sri Lanka, Cambodia, and Thailand, even as it loses competitiveness to Vietnam, the Philippines, and Indonesia, which face lower US tariff rates of 19–20 percent.

By contrast, Cambodia and Thailand will face a 36 percent tariff from August 1, placing them at a greater disadvantage than India.

Despite these trade disruptions, India is expected to retain its tag as the world’s fastest-growing major economy.

“I don’t care what India does with Russia. They can take their dead economies down together, for all I care,” President Trump wrote on his Truth Social platform.

In its latest World Economic Outlook, the IMF revised India’s FY26 GDP forecast upward to 6.4 percent, while the Asian Development Bank projected a growth rate of 6.5 percent for the same period.

“India through its reforms and MSMEs and industry's efforts are currently the 4th largest economy and will soon become the third largest economy… International agencies look at India as the bright spot in the world economy,” Goyal said.