26% tariff blow 'worse than expected', India's GDP may take 50 bps hit, say experts

A tariff of over twenty percent could impact India's GDP by 50 basis points: Macquarie.

The U.S. tariff blow to India is worse than expected, noted experts, adding that the blanket tariff of 26 percent applied across all Indian products could be highly negative.

A 26 percent tariff could have a potential impact of $30 billion on India's gross domestic product (GDP), which would amount to about 0.7 percent of the $4.3 trillion GDP India's likely to have by the end of the calendar year 2025, as per the International Monetary Fund (IMF).

A blanket tariff of more than twenty percent could impact India's GDP by more than 50 basis points, noted international broking firm Macquarie. India is in the process of negotiating a bilateral agreement with the U.S.

International brokerage Goldman Sachs stated that the total effective tax rate on India will increase by 19.5 percent, based on all the announcements so far. The impact on the currency will be negative, as the Rupee will likely weaken against the U.S. Dollar. The brokerage believes that the RBI will not intervene aggressively to defend the currency.

"The announced tariffs are more severe than anticipated. While the market had expected the effective tariff rate to be in the high teens, the actual rates are now projected to be in the mid-to-high 20 percent range – possibly the highest we have seen in a century, a significant increase from the previous 2.5–5 percent levels," Arindam Mandal, Head of Global Equities at Marcellus Investment Managers said.

However, offering a silver lining, Morgan Stanley noted that while India is exposed to direct tariff risks, the bigger effect on growth from tariffs likely comes via the indirect transmission channel of weaker corporate confidence from heightened policy uncertainty and the spillovers to capex and trade cycle.

The brokerage added, "From this perspective, India's low goods trade orientation and ability to generate domestic demand offset mean it is among the least exposed economies within the region from an indirect effect standpoint."

Follow our market blog to catch all the live updates

Brokerages were bullish on pharma firms which bagged an exemption from Trump's reciprocal tariffs. All pharma imports to the U.S. are excluded from reciprocal tariffs, according to a White House factsheet. "Some goods will not be subject to the Reciprocal Tariff. These include copper, pharmaceuticals, semiconductors, and lumber articles," said the document.

The Nifty Pharma index that had seen relentless selling pressure on exacerbated investor fears may see a bounce-back, noted Hong Kong-based brokerage CLSA. Over the past six months, the pharma index tumbled nearly 10 percent in trade as the markets entered a corrective phase.

U.S. President Donald Trump unveiled global reciprocal tariffs at an event at the White House. For India, the President announced 26 percent 'kinder' reciprocal tariffs. Despite US being a significant trading partner of India, Trump has termed the latter as a “tariff king” and “tariff abuser”.

“India, very, very tough. Very, very tough. The Prime Minister just left. He's a great friend of mine, but I said, ‘You're a friend of mine, but you’re not treating us right.’ They charge us 52 per cent. You have to understand, we charge them almost nothing, for years and years and decades,” Trump said.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.