The United States is set to impose reciprocal tariffs starting April 2, leading to concerns over the potential impact on Indian exports. These new tariffs will increase import duties on specific Indian products, raising questions about their effect on export-driven sectors. Market participants are closely monitoring these developments, but according to a report by SBI Research, the overall impact on India’s economy is expected to be limited.
SBI Research estimates that the tariffs could result in a 3-3.5% decline in India’s exports. However, it argues that the country’s growing export base in manufacturing and services will help counterbalance this setback. India has strategically diversified its export mix, improved value addition in trade, and shifted supply chains through alternative routes. One such initiative is a trade corridor connecting Europe to the US via the Middle East, which could help minimize the impact of the new tariffs. Additionally, India may benefit from the recent US decision to impose duties on aluminium and steel imports from other countries.
India currently has a trade deficit of $13 million in aluminium products and $406 million in steel products with the US. While it is not a major steel exporter to the US, it remains one of the top 10 exporters of aluminium. However, its market share has declined from 3% in 2018 to 2.8% in 2024. The new tariffs could create opportunities for India to expand its aluminium exports while maintaining a stable position in the steel sector.
Another significant factor influenced by the US tariff policy is India’s ongoing free trade agreement (FTA) negotiations. India is in discussions with the UK, Canada, and the EU to finalize trade deals that focus on services, digital trade, and sustainable development. The FTA with the UK alone is expected to increase bilateral trade by $15 billion by 2030. Additionally, future trade agreements could enhance India’s digital trade capabilities, with projections suggesting the digital economy could contribute $1 trillion to India’s GDP by 2025.
SBI Research has also flagged potential concerns about the US economy slowing down, which could have broader implications for global trade. The report notes a long-term decline in US GDP growth, a slowdown in exports and consumption, and decreasing total factor productivity (TFP) growth. High wages in the US may also deter new investments, while net savings to GDP is at its lowest level since 2011 and the second-lowest since 1951.
Despite these challenges, SBI Research remains optimistic about India’s resilience. The country’s ability to absorb the impact of tariffs while simultaneously expanding its trade network positions it well for future economic stability. While short-term disruptions in exports are likely, India’s broader trade strategies and economic adaptability are expected to mitigate the overall effects of the US tariffs.
