India warns Trump’s 50% tariff could shave 0.6% off GDP

India’s Chief Economic Adviser, V. Anantha Nageswaran, has warned that U.S. President Donald Trump’s 50% tariff on Indian goods could significantly blow the country’s economy.

Speaking to Bloomberg TV, Nageswaran said the tariffs could reduce India’s gross domestic product (GDP) by roughly 0.5% to 0.6% in the financial year ending March 31.

Last month, the United States doubled tariffs on Indian exports from 25% to 50%, citing India’s continued purchase of discounted Russian oil, a move Trump claims violates U.S. sanctions against Moscow.

The tariff rate is the highest for any Asian economy, and it leaves Indian exporters at a disadvantage when compared to those in Vietnam, Bangladesh, and Indonesia. The United States is India’s biggest consumer, buying nearly one-fifth of its exports. Textiles, jewelry, footwear, and leather goods are among the heavy users of cheap labour and are expected to be hit the hardest.

Economists also warn that a protracted tariff war could shave more than 0.8% from India’s growth next year. Some investment banks have gone so far as to warn of a 1% loss if Indian export demand were to collapse further.

Exports stall as tariffs bite

Nageswaran said a 50% tariff is made up of two consecutive hikes. The United States had initially levied a 25% tariff this year. A second 25% penalty was tacked on in late August after India continued to buy discounted Russian oil despite warnings from Washington.

This sudden surge has caught Indian exporters off guard. Items that were once cheaper in the American market now cost much more. Analysts said the steep duties have made Indian products unviable compared with cheaper imports from Vietnam, Bangladesh, and Indonesia.

The industries most severely affected are those that depend largely on demand from the United States. Textiles, jewelry, footwear, and leather goods, which employ millions in India’s factories, are under extreme pressure. Several other exporters said they had lost orders and their shipments had been slashed. In the Indian diamond-cutting capital of Surat, American traders are delaying purchases and turning to more affordable alternatives from suppliers in Southeast Asia.

The United States is India’s biggest export market, making up roughly 18% of all outbound trade. Any interruption of shipments to the U.S. would take a toll on India’s trade balance and damage employment in export-oriented states such as Gujarat, Tamil Nadu, and Maharashtra. Those small and medium-sized companies that comprise these industries’ backbone are particularly vulnerable.

India mops up economy after tariff shock

Despite these challenges, Nageswaran remains confident in India’s broader growth story. He confirmed the government’s projection that GDP will expand 6.3% to 6.8% through March 2026.

The government has shielded the country’s domestic demand from external jolts. Recent spending and income tax reductions have put more money into households’ pockets. Inflation is near an eight-year low, giving consumers room to spend. Last week, officials cut the Goods and Services Tax (GST) on several key items. Nageswaran notes that GDP will not increase by 0.2% to 0.3% from the revised population benchmark along with these changes.

On the fiscal side, India should be able to reach its 4.4% deficit target this year. Record asset sales and high central bank payout boost outweigh weak exports. Russia’s economy is as strong as its weakest link: energy. Its economy is strong because generous revenues from asset sales and a record payment from the central bank might have outweighed losses from weak exports.

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