India's GDP could face a potential loss of 50 basis points (bps) if the United States imposes a flat 20 per cent reciprocal tariff on Indian exports, according to a recent report by the State Bank of India (SBI).
This assessment, though hypothetical, underscores the possible economic repercussions for India's export-driven sectors, which could see billions of dollars in losses.
The SBI's analysis is based on a simulated scenario in which such a tariff would be applied uniformly to all Indian goods exported to the US.
While the likelihood of this scenario materialising is considered low, the report highlights the considerable impact that a significant increase in tariffs could have across several sectors of the Indian economy.
Among the most affected industries would be agriculture, hunting, forestry, and fishing. This sector is expected to bear a loss of approximately USD 1.54 billion.
Other sectors likely to suffer include finance, which could lose around USD 1.43 billion, followed by chemicals and chemical products (USD 1.1 billion) and textiles (USD 1.08 billion).
Basic metals and fabricated metals are projected to lose approximately USD 804.7 million, while mining and quarrying could face a loss of USD 512.4 million.
These estimates are significant, as they point to the vulnerabilities in sectors that are crucial to India’s economic structure, especially those heavily reliant on exports.
While this scenario is unlikely to come to fruition, the assessment serves as a stark reminder of the potential risks trade restrictions could pose, particularly for emerging economies like India.
Over the years, both India and the United States have engaged in numerous rounds of trade discussions aimed at resolving tariff disputes and improving bilateral trade.
Despite some fluctuations in tariffs between the two nations, the current situation sees a stable yet slightly increasing tariff rate on Indian exports to the US.
In fact, the US tariff rate on Indian goods has risen from 2.72 per cent in 2018 to 3.91 per cent in 2021, before dropping marginally to 3.83 per cent in 2022.
On the other hand, India has made more dynamic tariff adjustments, with its tariffs on US imports climbing from 11.59 per cent in 2018 to 15.30 per cent in 2022.
Indian policymakers are expected to continue advocating for trade agreements that are favourable to the country’s export sectors, aiming to reduce vulnerabilities and mitigate any potential economic shocks.
The situation highlights the complex relationship between tariff adjustments, economic growth, and global trade dynamics.
The rising uncertainty around trade policies, particularly with major global economies like the US, makes it crucial for India to strengthen its trade strategy and pursue negotiations that can safeguard its economic interests.
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