India-US trade deal: 4 implications for Indian stock market from Trump's 25% tariff salvo
However, this ethos is being tested by the ongoing tariff dispute with the U.S., particularly concerning agricultural access. As noted in our July 11 article in The Mint titled 'What Tariff?! The $100 Billion Question,' the core issue lies in protecting India's vulnerable small-scale farmers. Unlike U.S. agribusinesses, Indian farmers lack subsidies and scale, and over 60% of the population still depends on agriculture. Opening the market to heavily subsidised U.S. products could be economically damaging.
Cultural factors also play a role—many U.S. dairy products contain animal fats, which conflict with dietary norms in largely vegetarian India. Simply put, caving on these fronts would be economic and cultural 'hara-kiri.'
The newly imposed 25% U.S. tariffs on Indian exports (starting August 1) are projected to trim India's GDP growth from 6.5% to around 6.25%—a 2.5% to 3% drag. While this will impact sectors like textiles, pharma, electronics, agri-products, and machinery, the broader effect is limited. Only 2% of Corporate India's earnings are at risk, as 85% of the economy remains domestically driven.
India is actively pursuing alternate trade avenues, including deals with the UK and EU, to offset potential export losses to the U.S.
India's longstanding defense relationship with Russia—still its top arms supplier—remains a sticking point for Washington, which would prefer India buy American weapons. Yet India continues to follow a multi-aligned strategy rooted in sovereign interest.
U.S. Tariff Details: 25% tariffs affect ~$87B of Indian goods exports (approx. 20% of total exports and 2.5% of GDP), particularly in key manufacturing and agri sectors.
Offsetting Factors: INR depreciation could help mitigate the impact by boosting competitiveness.
Global Effects: Higher tariffs and a narrowing U.S. trade deficit may slow global growth, adding deflationary pressure unless surplus countries like China and Germany raise domestic demand.
Capital Flows: Higher tariffs may trigger FII outflows, adding volatility amid already weak domestic demand.
Policy Watch: The RBI may need to consider monetary easing to counterbalance the external drag.
Sectoral Impact: Pharma, auto ancillaries, cables, and industrials face direct pressure; SMID caps and domestic cyclicals could be hit harder due to capital flight.
Potential Bright Spot: IT may benefit from sustained INR weakness, aided by low valuations—but sentiment remains key.
India remains firm in defending its economic and cultural interests, even as it seeks equitable trade partnerships. In the near term, markets are likely to remain volatile. A cautious investment stance is advised.
(The author is CIO-Equities, LGT Wealth)
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
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