Tariff burden on India lower-than-feared at 33.6%, not 50%: Nomura

India's effective tariff rate will be 33.6 percent, stated Nomura.

U.S. President Donald Trump’s imposition of 25 percent tariffs, with an additional 25 percent penalty for Russian crude imports, has pressured Dalal Street, with the benchmarks seeing sharp selling over the past month.

As the Street comes under pressure, based on Japan-based brokerage Nomura’s calculations,  the effective tariff rate on India is 33.6 percent, not 50 percent. The brokerage noted that around 60 percent of U.S. imports from India will face a tariff rate of 50 percent, meaning India’s effective tariff rate will be 33.6 percent.

A large portion of exports from India into the U.S. are exempt from tariffs, such as pharmaceuticals, semiconductors, electronics, and other goods exempt such as lumber, bullion, and certain minerals, make up over 30 percent of all exports to the U.S. Further, finished autos and auto components will be levied with just 25 percent tariffs, bringing the effective tariff rate lower.

When the revised tariffs were announced, Indian citizens decried the sharp 20 percentage points difference on rates levied on India compared to China’s 30 percent. However, based on Nomura’s calculation of effective tariffs, China will see a 42 percent tariff rate, as compared to India’s 33.6 percent.

Philippines, Malaysia, Taiwan, and Singapore will have the lowest effective tariff rates across Asia, along with lower actual reciprocal tariff rates.

According to Nomura, because of India’s firm stance on its agricultural red lines, the brokerage expects the 25 percent reciprocal tariff rate to remain in place through FY26, above its Asian competitors of 19-20 percent. “We also assume that the Russia penalty will remain in place for three months and will be removed after November, as some compromise emerges. Uncertainty remains high,” added the brokerage.

The higher tariffs will impact India’s GDP growth for the financial year. Nomura downgraded its FY26 GDP forecast to 6 percent, down 20 basis points from 6.2 percent previous to reflect the impact of higher tariffs.

Nomura’s estimate assumes that the additional 25 percent penalty will remain in effect until November, following which it will be waived. Were the 50 percent tariffs to remain imposed for the full financial year, Nomura believes it will hit the GDP by 40 basis points, taking it to 5.8 percent.

The impact of higher tariffs will hit the economy in three distinct channels:

1. Export-heavy sectors like textiles, gems and jewellery, seafood and household items face a near trade embargo with the 50 percent tariff, hitting MSMEs the hardest.
2. Weaker orders could trigger job losses in labour-intensive industries such as textiles, apparel, metals, chemicals, leather and gems that employed about 21 million workers in 2023, with many more in informal roles.
3. The external headwinds may also dent business confidence and delay private capex recovery.

However, in the near-term, expectations of lower prices (after the GST cut) will lead to lower demand in the run-up to the GST’s implementation (August-September), followed by a surge in demand afterwards (October-November), such that overall demand is largely similar. Instead, jobs and income prospects remain the more fundamental driver of consumption.

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