Trump's 25% tariff, penalty on India may cost economy over $30 billion, experts warn

On April 2, President Donald Trump had announced a tariff of 26 percent on India.

Just days before the August 1 deadline, U.S. President Donald Trump decided to slap a 25 percent tariff on Indian exports, along with an additional penalty. The figure is in-line with the 26 percent tariff earlier announced on April 2, 2025.

However, experts had suggested that tariffs of 26 percent would cause a potential impact of $30 billion on India's gross domestic product (GDP).

Posting on Truth Social, Trump referred to India as a "friend" of the United States but said it would still be subject to the tariffs and penalties due to its continued purchases of Russian oil and military hardware. He also repeated his claim that India imposes some of the "highest tariffs in the world."

When President Trump announced his first set of reciprocal tariffs on April 2, experts stated that the U.S. tariff blow to India was worse than expected. 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).

However, if the tariff rate of 25 percent is imposed, along with the the penalty, it could have a sharper impact on these projections. Aditi Nayar, Chief Economist, ICRA said, "When the US had initially imposed tariffs, we had lowered our forecast of India's GDP expansion to 6.2 percent for FY2026, presuming a tepid rise in exports and a delay in private capex."

However, she added, "The tariff (and penalty) now proposed by the U.S. is higher than what we had anticipated, and is therefore likely to pose a headwind to India's GDP growth. The extent of the downside will depend on the size of the penalties imposed."

Earlier, international broking firm Macquarie had also said that a blanket tariff of more than twenty percent could impact India's GDP by more than 50 basis points. Goldman Sachs had said that, based on a 26 percent tariff rate, 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.

However, on the positive side, brokerages and experts noted that not a large portion of India's economy is focused on exports; India's economy is more domestic focused.  Morgan Stanley had said, "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."

Further, offering a silver lining, Garima Kapoor, Economist and Executive Vice President, Elara Capital said, "It is pertinent to note that any hotchpotch deal which would have compelled India to give concessions to its agriculture and dairy sector may have had much deeper ramifications politically, socially, and eventually on livelihoods."

She added that a well-negotiated deal that addresses all aspects of trade, investment and tariff and non- tariff barriers by September-October 2025 is likely to yield long term benefits than a hurried deal.

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