New Delhi [India]: As US President Donald Trump prepares to announce reciprocal tariffs, a report by Motilal Oswal suggests that the impact on India will be minimal, despite India having the highest tariff differential (9%) with the US among major economies.
According to the report, only 1.1% of India’s GDP will be affected, as India’s exports to the six most vulnerable sectors make up only a small portion of total GDP.
Key Findings of the Report:
The report states:
“With a tariff differential of 9 per cent and assuming that the elasticity of India’s exports to the US with respect to tariffs is -0.5 (implying a 1 per cent rise in the tariff rate would reduce India’s exports to the US by 0.5 per cent), there will be a loss of USD 3.6 billion in exports to the US, which is only 0.1 per cent of India’s GDP (-0.5*9, 4.5 per cent fall in India’s exports to the US).”
Most Vulnerable Sectors
The six key sectors identified as most vulnerable to the tariff changes include:
- Electrical machinery
- Gems & jewellery
- Pharmaceuticals
- Machinery for nuclear reactors
- Iron & steel
- Seafood
These six sectors account for $42.2 billion in exports to the US, making up 52% of India’s total exports to the US and about 1.1% of India’s GDP.
India-US Trade Overview
- Total bilateral trade (2024): $124 billion
- India’s exports to the US: $81 billion
- India’s imports from the US: $44 billion
- Trade surplus in India’s favor: $37 billion
Impact on Specific Sectors
- Agriculture and Dairy Products: These items, despite a higher tariff differential, make up only $0.5 billion of exports and are less likely to be affected.
- Energy, Metals, and Automobiles: These sectors are less vulnerable because India imports more than it exports, meaning higher US tariffs would hurt the US more than India.
Comparison with Other Nations
The report suggests that India will be less affected compared to Mexico, Canada, and China, which have higher trade imbalances with the US.
“India faces the largest tariff gap compared to other major nations. However, the US’ trade deficit with India is only the 10th highest among the US’s trading partners, which might cushion it from specific targeting, in contrast to Mexico, Canada, and China,” the report adds.
India’s Top Exports to the US
- Electronics (15.6%)
- Gems & Jewellery (11.5%)
- Pharmaceuticals (11%)
- Machinery for Nuclear Reactors (8.1%)
- Refined Petroleum Products (5.5%)
Rising Trade Surplus with the US
India’s trade surplus with the US has doubled in the last decade:
- 2015: $9 billion (0.9% of India’s GDP)
- 2024: $37 billion (1.0% of India’s GDP)
The PLI scheme (introduced in 2020) has played a key role in boosting exports, particularly in electronics, along with pharmaceuticals and textiles.
Conclusion
While India has a high tariff differential with the US, the overall impact of reciprocal tariffs is expected to be limited. Key sectors such as electronics, pharma, and textiles have strengthened trade relations, making India less vulnerable than other US trading partners like China, Mexico, and Canada.