US Tariff Impact on Indian Exports
US President has imposed a 25% tariff along with unspecified penalties on most Indian goods. This move could potentially reduce India's GDP growth by 20 to 30 basis points, with projections for FY26 adjusted to 6.2-6.3% from the expected 6.5%.
Economic Context and Comparisons
- India remains the fastest-growing large economy in the G20, with growth exceeding 6% compared to the US's growth of less than 2%.
- In terms of GDP size, India's economy stands at $4.19 trillion, substantially less than the US's $30 trillion.
- However, in Purchasing Power Parity (PPP) terms, India is the third-largest economy at over $16 trillion.
Geopolitical Implications
- The USA's displeasure with Russia's actions and India's trade relations with Russia highlight geopolitical tensions, affecting trade dynamics.
- The US has applied tariffs unilaterally, undermining multilateral trade rules like the WTO's Most Favoured Nations clause.
- BRICS countries, seen as a threat to US dollar dominance, are particularly targeted.
Strategies for India
- Consideration of retaliatory tariffs on US goods is limited by India's existing high agricultural tariffs.
- Diversifying export markets is crucial.
- With US tariffs primarily targeting goods, India must leverage its service exports, which so far remain unaffected.
Trade Negotiation Prospects
- India and the US had envisioned increasing bilateral trade to $500 billion by 2030, but new tariffs challenge this goal.
- India may need to offer substantial concessions, such as increasing imports of US crude oil, defense items, or technology, to negotiate tariff reductions.
- Potential reductions in duties on imports like whiskey, luxury cars, and certain agricultural products could be considered.
Focus on Agricultural Reforms
- Agricultural research and development (Agri-R&D) is crucial for reforming India's agriculture amidst high tariffs.
- Decisions on allowing GM crops, such as GM soya and corn, through tariff rate quotas, need to be based on scientific assessments.
- Gradual calibration of duties on agricultural imports is necessary for long-term sustainability.
