Trump's 25% tariff on Indian goods may hit GDP growth
What's the story
US President Donald Trump's recent decision to impose a 25% tariff on Indian goods could significantly impact India's GDP growth. Analysts have warned that the move could cut India's projected economic expansion by as much as 50-60 basis points. The Reserve Bank of India (RBI) had earlier estimated a GDP growth rate of 6.5% for this fiscal year, but that number may now be revised downward.
SBI's projection
SBI's research shows alarming GDP growth impact
The State Bank of India (SBI)'s research indicates that a 20% tariff could lower India's GDP by as much as 50 basis points. If the tariff is raised to 25%, the impact would be even greater, reducing GDP growth by around 62 basis points. This would push India's economic expansion down to about 5.87%, well below the RBI's original forecast of 6.5% for this fiscal year.
Export impact
Exports could take a massive hit
SBI's study also suggests that a 1% increase in tariff could result in a 0.5% fall in export volumes. With a 25% tariff, this could mean a whopping 12.5% drop in exports. The potential fallout is huge for the Indian economy as the US is its biggest export market, accounting for nearly 18% of India's goods exports.
Varied predictions
Other economists weigh in on potential impact
Other economists have also weighed in on the potential impact of Trump's tariffs. ANZ economists Dhiraj Nim and Sanjay Mathur estimate a 25% tariff could cut GDP growth by 40 basis points. Barclays predicts an impact of 30 basis points while Nomura expects a lower effect of 20 basis points.
Tariff details
Trump threatens tariffs on Indian imports, defense purchases from Russia
Trump recently announced a 25% tariff on Indian goods imported into the US. He also threatened an additional "penalty" for buying energy and defense equipment from Russia. The Indian government is currently analyzing the impact of Trump's announcement and is committed to reaching a "fair, balanced, and mutually beneficial" trade agreement.