US Tariff on Indian Goods May Reduce Economic Growth by 0.3 Percentage Points

Strategic Insights -

India's economic growth projection for 2025-26 is expected to be downgraded by 0.3 percentage points to 6% due to the 50% tariff on Indian goods announced by the US, according to Moody's Ratings. The credit rating agency stated that strong domestic demand and a resilient services sector will help cushion the impact. However, the tariff gap with other Asia-Pacific countries, particularly in higher value-added sectors such as electronics, may severely curtail India's manufacturing ambitions.

Key Takeaways:

  • The 50% tariff on Indian goods announced by the US may reduce India's economic growth by 0.3 percentage points, bringing it down from the projected 6.3% for 2025-26.
  • The tariff gap with other Asia-Pacific countries, particularly in higher value-added sectors such as electronics, may severely curtail India's manufacturing ambitions.
  • India's response to the developments will play a key role in shaping its economic outlook, inflation, and external position.
  • The US tariff will increase the potential strain on India's economy, widening the gap compared to the 15-20% tariff rates for other countries in Asia-Pacific.
  • Sectors such as pharmaceuticals and electronics are currently exempted from the US tariffs.
  • A possible tariff of 50% on pharma exports may hit earnings of pharma companies by 5-10% in FY26.
  • India plays a crucial role in the global supply of affordable, high-quality essential medicines, particularly life-saving oncology drugs, antibiotics, and chronic diseases treatments.

Statistics:

  • India's projected economic growth for 2025-26 is 6.3% (Moody's Ratings).
  • The 50% tariff on Indian goods announced by the US may reduce India's economic growth by 0.3 percentage points (Moody's Ratings).
  • India's oil imports are 35% accounted for by Russia (State Bank of India).
  • India's fuel import bill could increase by $9 billion in 2025-26 and $11.7 billion in 2026-27 if India halts Russian oil imports (State Bank of India).
  • India has diversified its sources of supply to about 40 countries (State Bank of India).
  • Revenue from the US for big pharma companies stood in the range of 40-50% (State Bank of India report).
  • The US tariff will increase the potential strain on India's economy, widening the gap compared to the 15-20% tariff rates for other countries in Asia-Pacific (Moody's Ratings).

Sources:

  • Moody's Ratings (no specific date mentioned)
  • State Bank of India (no specific date mentioned)
  • Times of India (August 26, 2023)