NEW DELHI: The direct export loss to India from the recently announced higher US tariffs is likely to be contained at around 0.3–0.4 per cent of GDP, according to a report released by CareEdge Ratings. The report cites India’s domestic demand-driven economy and the relatively low share of its goods exports to the US as key factors cushioning the impact.
“India’s overall export dependence is relatively low, and its merchandise exports to the US constitute just about 2 per cent of GDP, providing additional resilience,” the report notes.
Crucially, India’s services exports — a major pillar of its external sector — remain outside the purview of these tariffs and are expected to continue supporting the economy, the report adds.
CareEdge projects the current account deficit (CAD) to remain manageable at 0.9 per cent of GDP in FY26. A shift in India’s oil sourcing strategy away from Russia is also unlikely to significantly impact the CAD, given the narrowing price gap between Russian Urals and Brent Crude — down to $3 per barrel from an average of $20 in 2023.
In FY25, India’s merchandise exports to the US stood at $87 billion. Electronic goods led the pack, accounting for 17.6 per cent, followed by pharmaceutical products (11.8 per cent) and gems and jewellery (11.5 per cent).
The US is the destination for 37 per cent of India’s total electronics exports. Some select electronic items have been temporarily exempted from the 25 per cent tariff hike. Additionally, pharmaceutical exports — 35 per cent of which go to the US — have also been excluded from the new tariff regime, the report states.
However, CareEdge warns of continued risks of sector-specific tariff actions. India hosts one of the largest numbers of US FDA-approved facilities producing generic medicines for the American market. While the sector faces ongoing uncertainty, its inherent competitiveness offers a degree of protection, the report adds.
The imposition of the 25 per cent tariffs — and the possibility of additional penalties linked to India’s trade with Russia — has eroded India’s earlier tariff advantage over regional peers like Vietnam, Indonesia, and South Korea, the report observes.
While India-US trade negotiations are ongoing and may yield some concessions, progress is expected to be slow. India is likely to remain cautious about opening sensitive sectors such as agriculture and dairy, which could delay the conclusion of talks.
Given this evolving scenario, the report concludes that it is too early to identify clear winners and losers. Volatility in global financial markets is expected to continue, with tariff-related developments remaining a key area to watch in the coming months.
