US tariff hike could pressure India's economy and banks, says CreditSights

Business Standard

3 days ago

India and the US have held five rounds of trade negotiations, with the sixth round scheduled later this month in India
Rahul Goreja New Delhi
Tariffs imposed by United States (US) President Donald Trump could weaken India's economic outlook, with pressure on key export industries likely to spill over into the banking sector, according to Fitch-owned research firm CreditSights, as reported by The Economic Times.
Context
Last week, the Trump administration announced an additional 25 per cent duty on Indian exports involving the import of Russian oil, effective August 27. This follows a prior 25 per cent tariff on Indian imports, raising the total duty to 50 per cent. Brazil is the only other country facing a similar tariff under the new US measures.
Limited direct exposure, but sectoral pain ahead
CreditSights noted that India's direct export exposure to the US is limited—about 2 per cent of gross domestic product—suggesting the broader impact could be 'manageable' due to the economy's reliance on domestic consumption and capital investment.
However, several export-dependent sectors could come under pressure due to their reliance on the US market. These include:
Textiles
Jewellery
Apparel
Seafood
Machinery and mechanical appliances
Chemicals
Auto components
Banking sector implications
The report also cited CreditSights' analysis (as of June 2025), which found Indian banks' exposure to these sectors to be under 10 per cent, indicating limited direct risk. However, banks could still face 'second-order' impacts, such as:
A rise in credit costs, even if asset quality remains stable
A likely slowdown in corporate loan demand, which was already subdued in Q1FY26
A possible decline in investor sentiment towards future investments
These developments could weigh on credit growth and bank earnings, the firm said, as quoted by The Economic Times.
Policy response in the works
A trade pact between the two countries could help reduce the duties. India and the US have held five rounds of trade negotiations, with the sixth round scheduled later this month in India.
Additionally, the commerce and industry ministry has firmed up support schemes worth approximately ₹25,000 crore under the Export Promotion Mission for a six-year period, according to a recent Business Standard report.
The proposal has been submitted to the finance ministry for approval. Once cleared, the schemes will be rolled out after Cabinet approval, two people aware of the matter said.