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Mint
01-08-2025
- Business
- Mint
India to defend interest, pursue US talks in parallel
India has vowed to defend its national interest after the US imposed stiff tariffs on its goods, even as it works to conclude a trade deal that's in the best interests of both. On Thursday, economists counted the cost of tariffs on India's exports and growth, even as the stock market took the news in its stride. "The government attaches utmost importance to protecting and promoting the welfare of our farmers, workers, entrepreneurs, exporters, MSMEs and all sections of industry. We will take all necessary steps to secure and advance our national interest," commerce minister Piyush Goyal said in the parliament. The government is examining the implications of these tariffs and is engaged with all stakeholders, he said. Meanwhile, US President Donald Trump ratcheted up his rhetoric, a day after he announced a 25% tariff plus a penalty on Indian goods from 1 August. India and Russia "can take their dead economies down together", Trump commented, expressing displeasure over the continued trade and defence links between the two countries. Trump's announcement came ahead of a US trade team visiting India from 25 August. Despite the sour remarks, India will keep its focus on discussions with the US for a bilateral trade agreement (BTA) with a mutually beneficial outcome, said two people who are directly involved in the process. New Delhi has chosen not to retaliate, Mint reported on Wednesday. On Thursday, India's Nifty 50 index closed at 24,768.35, down 86.70 points or 0.35%, amid volatility triggered by US tariff concerns. Preliminary analysis suggests India could face a loss of nearly $10 billion in export value to the US if the tariffs stay for long, the first of the two people said, requesting anonymity. The loss would be a significant setback, with labour-intensive sectors such as textiles, footwear, gems and jewellery, and electronics likely to be hit the hardest. The US is not only India's largest trading partner but also one of the few major economies with which India enjoys a significant trade surplus. India's goods trade surplus with the US rose to $41.18 billion in fiscal year 2025 (FY25), up 16.6% from $35.33 billion a year ago. The increase was driven by an 11.6% rise in exports to $86.51 billion, while imports from the US grew 7.4% to $45.33 billion. In comparison, India's overall goods trade reported a deficit of $282.8 billion in FY25. According to government estimates, about 75.3% of India's merchandise exports to the US could be impacted by the proposed tariffs. 'There will be no change in priorities and strategies, which will remain the same as during the last five rounds of face-to-face talks that began in March following the joint statement issued by the leadership of both nations on 13 February,' said the second person mentioned above. Analysts agree that the tariffs will negatively impact India's GDP growth, with Goldman Sachs Economic Research projecting a potential direct hit of 0.2-0.3 percentage points on its CY25 real GDP growth estimate. While acknowledging the potential for a short-term hit, analysts like V.K. Vijayakumar from Geojit Investments and Aditi Raman from Moody's Analytics said that trade talks might lead to a lower final tariff rate and that India's domestically-driven economy offers some resilience against significant long-term impact. Madhavi Arora, chief economist at Emkay Global Financial Services, said the tariff would significantly raise the effective US duty on Indian goods from an average of 10.7% to about 22%, after factoring in higher duties on exempted sectors such as copper, steel and aluminium. This rate, she added, is already higher than what most Asian economies face, barring China. India exported goods worth $87 billion to the US in FY25, accounting for 2.3% of GDP, said Arora. Of this, engineering goods, electronics, drugs and pharmaceuticals, gems and jewellery, and textiles made up $65 billion. Meanwhile, India should continue to focus on manufacturing for the world, but with a more diversified 'US-plus' export market, even as the US tariff and penalty for trade with Russia have bared vulnerabilities, said experts. 'The latest set of tariff announcements has indeed exposed vulnerabilities in export-dependent growth models, necessitating a strategic recalibration of India's manufacturing framework,' said Rishi Shah, partner and economic advisory services leader, Grant Thornton Bharat. 'Our 'Make in India' initiative's emphasis on scaling production capacity remains fundamentally sound, but the current trade environment underscores the need for a more nuanced approach centred on innovation-led industrial development.' India must now elevate industrial security to the 'same strategic priority we've accorded food security and energy security over the past decades', said Shah. On the issue of penalties for buying Russian oil, the second person said that it is not yet clear, as it remains to be seen in what form they might be imposed. To be sure, Trump had pressed India to change its stance and allow greater access to American goods in the Indian market. Mint was the first to report on 11 June that US has changed its stance and was firm on the demand to open critical sectors like agriculture, dairy and access to US's GM seeds and agricultural products as well as digital trade. Negotiations for a bilateral trade agreement (BTA) began in March 2025 and have since progressed through five rounds of physical meetings and multiple virtual sessions. The Terms of Reference for the agreement were finalized on 29 March during the first round in New Delhi, Goyal told Parliament. The government is currently examining the implications of the steep tariffs and is actively consulting with exporters and industry stakeholders to assess the impact, he said. The revised tariff is expected to impact agricultural exports to the US significantly. 'This sudden hike could seriously dent profitability and slow down export momentum for products like basmati rice, pulses, grapes, and makhana,' said Anil Kumar SG, founder of Samunnati, an agri value chain solutions provider. However, Apparel Export Promotion Council chairman Sudhir Sekhri believes that the 25% tariff is not a major cause for concern as long as tariffs on competing countries like Vietnam and Bangladesh are not revised downward from current levels. 'Apparel exports are expected to slow down until the announcement of an interim BTA, which we hope will be concluded between October and December 2025. The penalty remains a grey area, and we expect the government to negotiate this with the US,' Sekhri said. The US remains a key market for Indian ready-made garments, accounting for 33% of India's total garment exports in 2024. India's total merchandise exports, excluding petroleum, reached a record $374.1 billion in FY25, up 6% from $352.9 billion a year earlier.
Mint
31-07-2025
- Business
- Mint
India's trade surplus with the US under threat as new tariffs bite
New Delhi: India's goods trade surplus with the US has doubled over the last decade, rising from $20 billion in 2015 to $40 billion in 2025. Now, that success may come at a steep price. The latest tariff imposed by US President Donald Trump on India, if fully implemented and combined with existing sector-specific tariffs on products like aluminium, steel and automobiles, could raise the average US import duty on Indian goods to 26.6 percentage points, according to Goldman Sachs Economic Research released on Thursday. "This would bring the tariffs closer to the original reciprocal levels announced on April 2," the Goldman Sachs Economic Research report said. The economic research division of the global investment banking major expected the US reciprocal tariffs to have a potential direct impact of around 0.2pp (percentage points) on its CY25 real GDP growth estimate for India. "If the new tariffs are enforced, that would constitute a potential incremental drag of around 0.3pp (annualised)," it said. This estimate is based on India's goods exports exposure of roughly 4% of GDP to US final demand and a "goods export demand elasticity of about 0.5", it added. In December, Goldman Sachs' economists expected India's economy to grow at an average of 6.5% between 2025 and 2030. Tariff Wednesday President Donald Trump, in a post on his Truth Social platform on Wednesday, announced that Indian exports to the US will face a 25% tariff starting 1 August, along with an additional penalty for buying oil and military equipment from US-sanctioned Russia. He, however, didn't elaborate on the additional penalty. Citing high Indian tariffs, "obnoxious" non-monetary trade barriers, and New Delhi's continued defence and energy ties with Russia, Trump said the move was necessary to address America's 'massive trade deficit" with India. To be sure, the US is not only India's largest trading partner but also one of the few major economies with which India enjoys a significant trade surplus. India's goods trade surplus with the US rose to $41.18 billion in fiscal year 2025 (FY25), up 16.6% from $35.33 billion a year ago. The increase was driven by an 11.6% rise in exports to $86.51 billion, while imports from the US grew 7.4% to $45.33 billion. In comparison, India's overall goods trade reported a deficit of $282.8 billion in FY25. A decade of gains at risk India's growing trade surplus with the US, largely driven by exports of electronics, pharmaceuticals, and textiles, has been a hallmark of the bilateral relationship. But Washington now views this imbalance through a tougher geopolitical lens. The latest tariffs are framed as retaliation not just for India's trade policies, but also for its reluctance to reduce imports of Russian oil, estimated at 650 million barrels annually, and its continued procurement of defence equipment from Moscow, which accounts for roughly 36% of India's defence imports. 'Even as the US slaps India with 25%+ tariffs, the trade saga is far from over. There is as much of a geopolitical angle to this as an economic one," financial services firm Emkay Global noted in its latest report, adding that the confrontation reflects both economic and geopolitical undercurrents. "While we believe a trade deal will be eventually negotiated between India and the US, we note that even nations that have cracked a US deal so far face unfavourable elevated tariffs, despite giving sweeping concessions to the US," it added. Sectors in the crosshairs The US is India's largest export market, accounting for around 18% of outbound shipments, equivalent to roughly 2.3% of India's GDP. Several high-value sectors are now exposed to significant risk. Indian shrimp exporters, who send 40–45% of their product to the US, face the harshest blow. With existing anti-dumping and countervailing duties already in place, the new tariff brings their total duty burden well above competitors such as Ecuador, Vietnam, and Indonesia. 'This higher tariff burden significantly compresses price competitiveness and could lead toloss of market share, particularly in the commodity and mid-value segments where pricing is a key determinant," Equirus Express wrote, warning of likely market share losses for mid-range producers. The apparel industry also faces headwinds. India commands just a 6% share of the US garment import market, far behind China, Vietnam, and Bangladesh. A 25% tariff could further slow its recent gains. The pharmaceutical and gems and jewellery sectors, once considered resilient due to their high value-add and regulatory complexity, aren't insulated either. "Pharmaceuticals, gems, and textiles are key sectors that are likely to be hit," said Aditi Raman, associate economist at Moody's Analytics. A point of contention is market access to the key agricultural and dairy sector, which India has historically been reluctant to grant, Raman added. An uncertain investment climate Beyond the direct trade effects, Indian policymakers worry about secondary impacts on investment and financial markets. According to Goldman Sachs Economic Research, policy uncertainty in the US has risen markedly since the new administration took office in January 2025. A spike in US trade policy uncertainty alone could reduce India's GDP by an additional 0.3pp, the bank warns, especially as companies delay investment decisions in response to the new rules. Jefferies Equity Research points to further macroeconomic ripple effects, as higher crude prices could widen the current account deficit, put downward pressure on the rupee, and reduce the Reserve Bank of India's (RBI) scope for interest rate cuts. "If India's US trade surplus were to halve, it would have about 25-40bps of GDP impact. Also, similar impact on CAD, combined with potentially higher oil prices, can drive further depreciation of the INR and likely put a pause to any near-term rate cuts," Jefferies Equity Research said in a report released on Thursday. "FPI (foreign portfolio investors) sentiment could stay weak as India's relative 'friend of US' / 'beneficiary of China +1' image takes some knock. We remain hopeful of an eventual trade deal and some of the above impact getting reversed," it added. Hope for resolution While the shock is real, many observers still believe the situation is negotiable. Past trade skirmishes between India and the US have ended in compromise, and sectoral carve-outs, especially for sectors like pharmaceuticals, may be on the table. DBS Bank suggests that the final effective rate may settle between 15% and 20% once exemptions and concessions are factored in. The government, for its part, has reaffirmed its commitment to securing national interest while pursuing a 'balanced and mutually beneficial" deal. In the interim, India is expected to accelerate efforts to diversify both its export markets and its sources of energy and defence procurement. Fresh trade agreements with the EU and others are already under discussion. "We had previously estimated around 25-30bp of impact on growth if rates were uniform across sectors. Downside risks are likely to be offset by fiscal support for labour-intensive industries and smaller exporting firms, besides further rate cuts," DBS Bank said in its latest report. But even with diversification underway, the short-term risks appear to be tangible. "Shifts in the global trade order are unlikely to be smooth. Near-term, brace for volatility in capital flows and asset classes, with the INR bearing the brunt and feeding into the RBI's reaction function," Emkay Global said in its latest report. "The RBI, like most EM (emerging markets) central banks, will need to confront various push and pull factors via the financial market route, even with the growingly easing bias," it added. Economic growth impacted India's economy is expected to remain strong, with the Reserve Bank of India (RBI) forecasting GDP growth for FY26 at 6.5%, slightly below the earlier estimates due toglobaltrade risks. The finance ministry expects growth at 6.3-6.8%, supported by structural reforms and stable macro fundamentals. The International Monetary Fund (IMF) recently raised its forecast to 6.4%, citing easing trade tensions and resilient domestic demand. However, while the outlook remains optimistic, these institutions flagged external risks as key downsides. Madan Sabnavis, chief economist atBank of Baroda, said a 25% tariff, excluding the penalty component, is not very different from April levels, when the tariffs were first announced by Trump, but will still put pressure on Indian exporters. "At this stage, some depreciation may be appropriate to support exports. Overall growth can be affected, and our forecast of 6.4-6.6% holds even now with the most negative impact leaving to 6.4%," he added.
