Trump's 25% tariff: How Indian economy is likely to be affected

US President Donald Trump said on Wednesday the United States would levy a 25% tariff on Indian goods starting August 1. Earlier, US had levied tariffs up to 50% on steel and aluminium, 25% on autos in addition to a 10% base tariff. In addition, he also announced an unspecified penalty related to India's energy and defence purchases from Russia. 

Trump's latest move on tariffs is likely to impact India's exports to the US. This in turn could mean bad news for the Indian economy, which expanded by an estimated 6.5% in 2024–25, the slowest in four years.

In 2024, Indian exports to the US climbed to $87 billion with gems and jewellery ($8.5 billion), pharma ($8 billion) and petrochemicals ($4 billion) topping the sectoral list.

Services exports such as IT and professional services stood at $33 billion.

Commenting on the impact of US tariff on India's GDP, Aditi Nayar, Chief Economist, ICRA said, "When the US had initially imposed tariffs, we had lowered our forecast of India's GDP expansion to 6.2% for FY2026, presuming a tepid rise in exports and a delay in private capex. The tariff (and penalty) now proposed by the US is higher than what we had anticipated, and is therefore likely to pose a headwind to India's GDP growth. The extent of the downside will depend on the size of the penalties imposed."

On the other hand, Garima Kapoor, Economist and Executive Vice President, Elara Capital gave a more accurate impact on India's GDP.

"Inclusion of pharma into tariffs should be incremental negative for India’s exports as US accounts for more than 30% of India’s pharma exports. If no deal is signed by Sept-October, we see a downside to full year GDP growth estimate for India by 20 bps," said Kapoor.

Trivesh D, COO Tradejini said, "Labour-intensive sectors like gems and jewellery, textiles, chemicals, and engineering goods are likely to face the brunt of the impact. That said, this may not be the final outcome. Trade talks expected in August, and this often involve complexities, and some back-and-forth is natural. What’s important is that the dialogue remains open, and both countries continue to seek mutually beneficial outcomes."