The recent 27% US tariff imposed on Indian imports is expected to have significant consequences for India’s economy, influencing multiple industries and necessitating strategic adjustments.
Analysts predict India’s GDP growth could slow by 20 to 40 basis points in the 2025-26 fiscal year due to these tariffs. This could bring down the Reserve Bank of India’s (RBI) growth estimate from 6.7% to around 6.3% or even 6.1%. To counteract the economic slowdown, the RBI may introduce further interest rate cuts. Having already reduced rates in February, projections suggest the policy repo rate could drop to 6.00%, with the potential to reach 5.5% by the end of the year.
Sector-Specific Effects
Gems and Jewelry: The diamond polishing industry in Surat faces significant disruption, as the U.S. accounted for $10 billion, or 30.4%, of India’s total $32 billion gem and jewelry exports in 2023/24. The new tariffs could lead to major job losses and a decline in business activity.
Agriculture: Key agricultural exports, including seafood and rice, might be less affected. Since the U.S. has imposed even higher tariffs on exports from other countries, Indian products could become more competitively priced in comparison.
Pharmaceuticals and Electronics: These industries have largely been exempted from the tariffs, helping them avoid negative impacts on exports.
Government Strategy and Trade Negotiations
The Indian government is closely evaluating the consequences of the US tariffs and remains committed to securing a trade agreement with the U.S. by the end of the year. Despite the challenges, New Delhi is taking a diplomatic approach, choosing dialogue over immediate countermeasures.
Economists warn that the US tariffs could trigger inflationary pressures and increase the likelihood of a U.S. recession, which might raise household expenses for American families by thousands of dollars. This situation highlights how deeply interconnected global economies are, with policy shifts in one country having widespread repercussions.
The newly imposed US tariffs pose considerable hurdles for India’s economy, impacting key industries and growth projections. How the Indian government manages its trade policies and negotiations will play a crucial role in mitigating adverse effects and maintaining economic stability.
