US tariffs are expected to negatively impact India's economic growth, especially in export-oriented and labor-intensive sectors such as textiles, gems, jewelry, and leather. Estimates suggest these tariffs could reduce India's GDP growth by around 0.5% to 1%, with the hardest-hit industries at risk of job losses and diminished export volumes. However, essential sectors like pharmaceuticals and electronics are largely exempt, and recent tax reforms in India may help offset some of the damage by boosting domestic consumption.
Sectors Most Affected
- Textiles,
gems, jewelry, leather, and marine products face the steepest declines in
US- bound exports.
- Labor-intensive
industries risk significant job losses as production may shift to competitor
countries like Vietnam and Bangladesh.
- Pharmaceuticals, semiconductors, energy, and critical minerals are exempt from most tariffs, limiting the overall GDP impact but creating sector-specific vulnerabilities.
Macroeconomic Impact
- Direct GDP exposure to these US tariffs is estimated at 0.5%-1.0% depending on pass-through effects and trade diversion.
- Lower
export volumes create extra inventories and production cuts, negatively influencing
employment and domestic consumption.
- India's informal sector and low-margin manufacturers are most exposed, escalating risks of economic distress among millions of workers.
Offsetting
Factors
- The government has reduced GST rates on essential items to stimulate local consumption, projected to raise GDP by 0.1%-0.2%.
- Continued reforms and supportive monetary policy could cushion the blow and help India retain its position as a fast-growing economy.
Policy
Responses and Long-Term Outlook
- India is pursuing diversification of export destinations and seeking trade negotiations with the US to minimize harm.
- Shifting
U.S. tariffs are prompting India to recalibrate its global trade strategy and
competitive positioning.
- Ongoing reforms and investment in domestic infrastructure and technology will be key in mitigating the impact over time.
Overall, while US
tariffs are a clear downside risk to India's growth, especially for
export-heavy and labor-intensive sectors, their impact on aggregate GDP is
likely to be moderate unless further escalations occur or offsetting measures
underperform.
