UAE: 25% US tariffs on India likely to weaken rupee further, boost remittance

Khaleej Times

5 days ago

The US decision to impose 25 per cent tariffs on Indian goods is likely to further weaken the Indian rupee against the US dollar.
For non-resident Indians (NRIs) in the UAE and other countries, this depreciation presents an opportunity — they will be able to remit more money to India, capitalising on favourable exchange rates.
The Indian rupee has already been on a declining trend, losing nearly one rupee against the UAE dirham over the past two months — falling from 22.9 in early May to 23.89 by July 31. With the new tariffs set to take effect from August 1, analysts expect the rupee to drop further, potentially hitting 24 against the dirham.
'The rupee has the potential to weaken to 24 as it comes under pressure from US President Donald Trump's tariff decision,' said Vijay Valecha, chief investment officer at Century Financial. 'This opens a window for NRIs to remit funds at more favorable rates. A strengthening US dollar is compounding the rupee's weakness, and we could see a surge in remittances as NRIs look to maximise value.'
Valecha also noted that the likelihood of further interest rate cuts in India has diminished despite inflation hitting a six-year low. 'After the RBI surprised markets with a 50-basis-point cut in June, most economists weren't expecting a follow-up. Now, with the rupee under pressure, the case for additional easing has weakened.'
There are an estimated 3.7 million Indian nationals living in the UAE, sending billions of dirhams home annually. As the rupee declines, remittances from the UAE are expected to increase, as NRIs look to take advantage of more favourable exchange rates for personal and investment purposes.
In addition to the 25 per cent tariffs, President Trump has also warned of further, unspecified penalties — citing India's continued purchase of Russian crude oil and military hardware. The White House is aiming to reduce the $42.7 billion trade deficit with New Delhi by pressuring India to boost imports from the US, possibly at the expense of its deals with Moscow. However, Trump has left the door open for negotiations, suggesting a trade agreement may still be in the works.
NRI investments in Indian stocks
NRIs with exposure to Indian equities or who run export businesses may face short-term headwinds.
'Exporters operating in sectors with significant US demand could see their profit margins shrink, and demand could soften due to higher prices,' said Valecha. 'NRIs who have invested in Indian firms with heavy US exposure — particularly in IT, pharma, and manufacturing — may also see pressure on their portfolios.'
Indian stock markets have reacted negatively to the tariff announcement. 'This pressure is likely to continue until a trade deal is finalised — possibly by September or October,' Valecha added. 'The risk appears to be partly priced in already, with US-exposed Indian equities underperforming the broader market.'
According to data from Century Financial as of July 29, the market capitalisation of US-exposed Indian companies is around 16 per cent lower than the benchmark index.
Despite short-term volatility, Valecha remains optimistic about the long-term outlook for Indian equities, citing strong fundamentals and economic growth.
Costlier Indian exports
The new tariffs will make Indian exports more expensive in the US market.
'A 25 per cent tariff increase essentially raises the cost of Indian goods for American consumers,' Valecha explained. 'This could discourage purchases of Indian products, especially in price-sensitive sectors like textiles, auto parts, and consumer goods.'
Exporters may be forced to absorb these additional costs rather than pass them on to buyers, in order to stay competitive and avoid losing market share.
'If American buyers switch to cheaper alternatives, India's export-focused industries may need to seek new markets or restructure their supply chains to offset potential losses,' he concluded.