On April 2, 2025, President Donald Trump made another dramatic move in the ongoing saga of global trade by slapping a nearly 20 percentage point increase in tariffs on Indian imports. This new wave of tariffs—part of his so-called “reciprocal” tariff strategy—might be seen as another chapter in a long list of trade disputes, but the real effects are far more nuanced, particularly for India’s economy.
First off, let’s address the immediate impact: India’s growth forecast has been shaved by a substantial 30 basis points for 2025. That’s a not-so-small cut to an already modest growth trajectory. The main culprit? The tariff hike, which will exert a drag on India’s exports to the U.S. This move—despite being far removed from the main trading hubs of the world—is no small matter when it comes to India’s GDP. The U.S. accounts for around 4% of India’s final demand, and the tariffs are expected to shrink that demand even further, knocking India’s growth down by an estimated 30bps, according to Goldman Sachs’ Global Investment Research.
Now, the situation might seem like a cruel blow from the U.S. to one of its largest trade partners, but here’s the twist: India is unlikely to retaliate. Despite the rather blunt tariff hike, there are indications that India and the U.S. are actively working towards a trade deal with hopes of boosting bilateral trade significantly. India, for its part, has already shown willingness by reducing its own tariffs on certain U.S. goods, including motorcycles. Energy imports from the U.S. have risen, and India is keen on smoothing things over to hit an ambitious trade target of $500 billion by 2030.
Still, the damage done by these tariffs is real, and it’s going to hurt—not immediately, but certainly enough to feel the pinch. It’s not just about the trade friction; it’s about the broader consequences on India’s services export sector, which will also face headwinds from the slowdown in U.S. economic growth. The numbers are telling a worrying story: India’s service exports are expected to face a 10bps drag, compounded by already disappointing high-frequency data showing Q1 2025 GDP tracking well below expectations, according to Goldman Sachs’ report.
So, what does this mean for the Indian economy going forward? Well, the growth forecast has been adjusted downward, and the RBI (Reserve Bank of India) is likely to respond with monetary policy easing. Goldman Sachs now predicts an additional 50 basis points of rate cuts—25bps in both Q2 and Q3 of 2025—on top of the 100bps already priced in. Lower rates, easier liquidity, and a dip in oil prices should help soften the blow, but the reality is clear: India’s growth story will be slower and more uncertain for the foreseeable future.
One interesting aspect to consider is the government’s fiscal stance. Despite the mounting economic pressure, India’s commitment to fiscal consolidation remains intact. The government seems unwilling to pump more fiscal juice into the economy, preferring to rely on monetary policy to cushion the fallout.
Meanwhile, on the external front, India is seeing a slight improvement in its current account balance, with net remittances helping to offset the widening trade deficit. However, the ongoing tariff tensions and service export slowdown are expected to weigh on the overall trade balance for 2025, leaving India with an estimated current account deficit of $42 billion—or 1% of GDP, according to Goldman Sachs.
But all is not lost. While these tariffs represent a significant short-term hurdle, the U.S.-India trade negotiations could bear fruit over time, bringing some of the tariff rates down. After all, both countries are keen to increase bilateral trade, and there’s a clear recognition that a mutually beneficial trade agreement could offer economic upside for both sides. India’s recent actions—such as reducing import duties and increasing energy imports from the U.S.—show that it’s not just standing by idly; it’s positioning itself for a future where trade tensions might simmer down.
At the end of the day, the “reciprocal” tariffs are more than just a trade skirmish; they’re a reminder of how geopolitical moves can send ripples through even the most resilient economies. For India, the road to 2025 growth just got a little bumpier, but with the right negotiations, a little easing, and perhaps a stroke of luck, it may still steer clear of a crash.