Further, just a couple of weeks ago, President Donald Trump announced his own, unilateral increase in tariffs on Indian goods all the way up to 50%. This decision will be implemented in 21 days. It would have a devastating impact on India’s economy, possibly in the range of tens of billions of dollars. He had already slapped a 25% tax on the country in response to their extensive trade protections and opposition to their oil deal with Russia. Now, the new tariffs have come to roost.
The impacts of this tariff increase will surely be felt across all aspects of the Indian economy. Given that India is one of the world’s top exporters of steel and aluminum to the US… These goods are now subject to tax thanks to another executive order. Lucky for the pharma industry, India’s massively growing exports to the U.S. are apparently shielded from the new tariffs. Further, it would provide additional certainty and predictability for the market.
The U.S. accounts for about a fifth of India’s total goods exports. This constitutes about 2% of the GDP of India. Although this is a large tariff increase, the economic implications for India are unlikely to be grave. This is very much attributed to India’s diversified trade partnerships across the world. The Nifty 50 index, a major benchmark for Indian equities, has about 9% direct exposure to U.S. The vast majority of this exposure is in IT services.
Economists are divided in their predictions about what these tariffs will do. Economists have claimed that the announced import duties will have a “marginal downside” impact on India’s economic growth. Tanvee Gupta Jain, an economist at UBS, noted that some sectors—gems and jewelry, apparel, textiles, and chemicals—are at higher risk from U.S. tariffs. In order to survive, these industries are likely to require targeted support measures from government.
“In terms of sectors impacted, we think gems and jewellery, apparel, textiles, and other chemicals are more exposed to the US tariffs and could see some targeted support measures from the government.” – Tanvee Gupta Jain
Market analysts further underscore the overall positive implications for Indian equities. Rajat Agarwal, an equity strategist at Societe Generale, observed that tariffs have primarily resulted in a depreciated Indian Rupee (INR). This decline has led to greater currency volatility, breaking down flows of foreign investment in the short term.
“The impact of tariffs for equities has fed through mainly via a weaker INR and higher currency volatility, which has weighed on foreign flows in the near term.” – Rajat Agarwal
Brian Jacobsen, the chief economist at Annex Wealth Management, expressed skepticism on the tariff hike’s actual effects. He contended that it would have “greater symbolism than substance.”
“There may be more symbolism than substance to the extra 25% tariff on imports from India.” – Brian Jacobsen