India Ratings and Research (Ind-Ra) has estimated that the potential imposition of reciprocal tariffs by the United States could lead to a decline in India’s exports to the US by USD 2 billion to USD 7 billion in the financial year 2025-26 (FY26). In a more probable scenario, the export impact is expected to be between USD 2 billion and USD 3.5 billion, which could trim India’s GDP growth by 5-10 basis points (bps) from the agency’s current estimate of 6.6%.
The clarity on the final impact will emerge over the next four to six weeks as trade negotiations progress between the two governments. Ind-Ra has highlighted the geoeconomic landscape as a key factor to monitor in the coming months.
Sectors Most Affected
The agency’s analysis of sectoral exposure indicates that textiles, chemicals (including pharmaceuticals), jewelry, auto components, and electronics are among the most vulnerable to the tariff imposition. In contrast, sectors such as food products, footwear, and petroleum fuels are expected to face a lower impact due to smaller trade volumes or alternative markets.
The potential tariff differential of 7 percentage points (pp) in 2023 serves as a key benchmark in Ind-Ra’s assessment. The study considers multiple elasticity scenarios to project export declines, with estimates suggesting that a 1% increase in US tariffs could reduce India’s exports to the US by 33 basis points (bps).
Potential Economic Impact
Ind-Ra’s simulations, based on four different elasticity levels and three tariff hike scenarios (7pp, 10pp, and 15pp), indicate that India’s exports to the US could decline by USD 1.78 billion to USD 7.33 billion. Consequently, GDP growth in FY26 could be trimmed by 5-20 bps, depending on the severity of tariff impositions.
The US is India’s largest merchandise trade partner, accounting for 17.73% of total exports in FY24. India has maintained a trade surplus with the US since FY09, with the surplus expanding to USD 35.32 billion in FY24.
Mitigation Factors
Ind-Ra notes that ongoing bilateral trade negotiations, defense agreements, and energy pacts between India and the US may help mitigate the adverse effects of reciprocal tariffs. India has already reduced custom duties on bourbon whiskey and may explore further trade concessions to protect key export sectors.
More clarity on the final product-wise tariff impact is expected as trade talks progress, determining the extent to which Indian exporters will need to seek alternative markets to offset potential losses.