50% tariff kicks in: Impact on GDP, exports and how India plans to tackle it. Key points

Trump had announced reciprocal tariffs of 25 per cent on India that came into effect on August 7, when tariffs on about 70 other nations also kicked-in.

The US imposed 50 percent tariff on Indian goods has come into effect from August 27 at 09:31 am IST as New Delhi failed to strike a deal to lower the duties before the end of the deadline.

A reciprocal tariff of 25 percent is already in effect since August 7 and a further 25 percent penalty for buying Russian crude oil became applicable from August 27. The tariff order was signed by US President Donald Trump earlier this month and notified on August 26 by the US department of homeland security.

As the tariffs kick in, here are the key points from the tariff saga so far

Impact on exports

The steep tariffs imposed on India is likely to have a significant impact on exports, affecting goods worth $48.2 billion. In FY25, New Delhi shipped goods worth $86.51 billion to the US with the top five products accounting for $60 billion of the total exports.

According to a Moneycontrol report, engineering goods exports will face the 50 percent tariff. Labour intensive sectors are likely to be the hardest hit, while the gems and jewellery industry goods will be levied 52.1 percent tariff. Auto components, organic chemicals, leather and footwear industry will also face the wrath of tariffs, with shrimp exporters levied a 60 percent rate.

Exemptions

Certain sectors have been excluded from the imposition of tariffs. These are goods already in transit, humanitarian products, drugs and pharmaceuticals, and electronics goods such as mobile phones, chips, among others.

How has India reacted to tariffs

India has described the imposition of duties as “unfair, unjustified and unreasonable”, calling out the hypocrisy of the west over buying energy from Moscow. New Delhi has made it clear that it will continue to buy oil from wherever if finds the “best deals”.

The Trump’s decision to impose tariffs on India has soured the ties between the two nations, jeopardizing years of efforts to build strategic relationship. The tensions have pushed India more towards China, with both sides making efforts to ease trade and other concerns after 2020 border clash.

On Monday, Prime Minister Narendra Modi asserted he can't compromise on the interests of farmers, cattle-rearers, small-scale industries, cautioning "pressure on us may increase, but we will bear it". Trade negotiations of both the nations stalled on disagreements over agriculture and dairy sectors.

Moreover, Washington said the 25 percent penalty was a tactic employed to get the Russians agree to a ceasefire in its war with Ukraine ahead of talks between Trump and Vladimir Putin that took place on August 15.

Reducing tariff pain

The government is deliberating on its plan to curb the tariff-induced pain. Reports indicate that the Centre is planning a scheme to lower the impact on exports and it is encouraging diversification of markets to cut dependency on the US. Easing of ties with China could also open up new markets, while Russia has said it will welcome Indian goods. The recent announcement to cut GST rates is also seen as an effort to lower the blow from tariffs for businesses.

Trade talks

The sixth round of trade talks between New Delhi and Washington was scheduled to be held from August 25. The previous five rounds held March and July failed to break the deadlock. However, the talks were postponed and new dates have not been announced so far. On Tuesday, India and the US said they held a virtual meeting to strengthen ties despite the tariff tensions.

GDP impact

S&P Global said it does not see a major impact on India’s growth because of the tariffs. “We don’t think tariffs imposed on India would have much of an impact on economic growth,” said YeeFarn Phua, director, sovereign & international public finance ratings, Asia, S&P Global Ratings. The agency expects India’s economy to grow at 6.5 percent in FY26.

Phua said India’s exports are limited to just 2 percent of the country’s GDP and the tariff blow will be further cushioned by exemptions provided to electronics    and other goods. However, a Moneycontrol’s poll of economists has projected a drop in GDP growth in the first quarter of FY26 to 6.6 percent from 7.4 percent in the last quarter.

What the experts think?

Mark Linscott, Senior Advisor with Washington DC-based business consulting and advisory firm The Asia Group, said that “unfortunately”, the US and India have managed to convert what appeared to be a true and unprecedented win-win on trade into a “remarkable lose-lose”.

“For the moment, the trade talks on reciprocal tariffs are on thin ice while the two sides stew over how to reach an understanding on Russian oil purchases. Hopefully, cooler heads who understand the value of the relationship will prevail in finding the path forward,” Linscott said.

Partner at The Asia Group Nisha Biswal said the 50 percent tariffs on India — now the highest of any US trading partner — will be hugely disruptive, pricing Indian textiles and garments out of the US market.

“US businesses have also lost the unprecedentedly low tariff rates that USTR (United States Trade Representative) had previously negotiated. The move also casts doubt on the China+1 strategy, creating uncertainty for companies that had shifted production to India,” she said.

With agency inputs