The United States is set to implement reciprocal tariffs on April 2, 2025, which could reshape India-US trade relations and disrupt the $129.2 billion bilateral trade between the two nations. As announced by President Donald Trump during his joint address to Congress, this policy aims to impose equivalent duties on imports from countries that levy higher tariffs on U.S. exports. India, with its historically high tariff regime, is among the countries most affected. Trump specifically criticized India's auto tariffs, which exceed 100%, and described India as a "hard place to do business." These measures come at a time when both nations aim to double bilateral trade to $500 billion by 2030 under the ambitious "Mission 500."
The Indian government has adopted a conciliatory approach, with Commerce Minister Piyush Goyal leading discussions in Washington to mitigate the impact of these tariffs. India is reportedly considering reducing tariffs on key U.S. imports such as agricultural products and luxury goods while seeking concessions for its export-driven sectors like IT services, pharmaceuticals, and textiles. However, the stakes are high as reciprocal tariffs threaten to erode India's competitiveness in its largest export market while increasing competition for domestic industries from cheaper U.S. imports.
This calls for considering the multifaceted impacts of reciprocal tariffs on India's exports, imports, employment, macroeconomic stability, and bilateral relations. There is also a need to examines potential strategies for mitigating these challenges while fostering long-term economic resilience.
Impact on Exports: Decline in Key Sectors
India's exports to the U.S., valued at $85.5 billion in 2024, span critical sectors such as IT services, pharmaceuticals, textiles, gems and jewelry, and agricultural products. The implementation of reciprocal tariffs could reduce these exports by an estimated 3-3.5%, according to SBI Research.
IT Services:
- IT services contributed $199 billion to India's exports in FY24, with over 50% of revenues coming from U.S.-based clients.
- While not directly targeted by tariffs, increased costs for U.S.-based tech products could indirectly affect Indian firms like TCS and Infosys.
- Visa restrictions for Indian professionals may exacerbate talent shortages and raise operational costs.
- A potential decline in demand could lead to job losses among the 4.5 million people employed in this sector.
Pharmaceuticals:
- Pharmaceutical exports totaled $23.6 billion in FY24, with the U.S. accounting for nearly 30% of this market.
- Higher duties on generic drugs could reduce India's competitiveness in the U.S., potentially costing exporters up to $7 billion annually.
- Increased raw material costs due to disrupted supply chains may further strain profitability.
Textiles and Apparel:
- Textile exports were valued at $15 billion in FY24 but have faced declining global competitiveness.
- Imported textiles from other countries may undercut Indian products in the U.S., threatening jobs in labor-intensive textile hubs.
Gems and Jewelry:
- Gems and jewelry exports reached approximately $40 billion annually, with the U.S. being a key market.
- Higher import duties on luxury goods could dampen demand for Indian diamonds and jewelry, impacting over 1 million workers.
Agricultural Products:
- Agricultural exports totaled around $50 billion annually, including rice ($11.4 billion) and spices ($4 billion).
- Imported food products from the U.S., such as grains and dairy, may undercut local prices, reducing farmers' incomes significantly.
Impact on Imports: Rising Competition for Domestic Industries
India imported goods worth $77.64 billion in January 2025 alone, including crude oil ($140 billion annually), gold ($45 billion), and electronics components ($18.6 billion). Reciprocal tariffs could increase competition for domestic industries by making U.S. imports cheaper.
Automotive Sector:
- Reduced tariffs on Tesla vehicles could intensify competition for domestic manufacturers like Tata Motors and Mahindra.
- Two-wheeler manufacturers such as Royal Enfield may face challenges if Harley-Davidson bikes become more affordable due to tariff cuts.
- Layoffs in manufacturing hubs could push unemployment rates above their current level of 8.1%.
Agriculture:
- Increased imports of subsidized U.S. agricultural products may depress local prices and hurt farmers' incomes.
- The government is exploring safeguard duties on critical agricultural imports to protect domestic producers.
Electronics:
- Reduced tariffs on imported electronics could hurt local manufacturers despite incentives under Production Linked Incentive (PLI) schemes.
- Dependency on Chinese imports (e.g., components worth $9.74 billion) may increase further.
Macroeconomic Implications
Rupee-USD Exchange Rate:
A widening trade deficit (projected at up to $7 billion annually due to tariffs) could exert downward pressure on the Indian Rupee (currently at INR 82/USD), leading to further depreciation if foreign investment inflows do not offset increased import costs.
GDP Growth Projections:
- GDP growth for FY25 is expected to slow by up to 10 basis points due to weaker export performance and rising import costs.
- The current account deficit is projected to widen beyond 2% of GDP if exports fail to keep pace with rising imports.
Sovereign Debt Concerns:
- Rising fiscal pressures from tariff impacts may push sovereign debt levels beyond their current figure of approximately 60% of GDP.
- Increased borrowing may be necessary to finance government support programs for affected industries.
Employment Impact:
- Up to 1 million jobs across sectors like automotive, textiles, pharmaceuticals, and IT services are at risk due to reduced export demand and increased competition from imports.
- Layoffs could exacerbate unemployment rates and strain household incomes further.
Strategic Recommendations
- Strengthen domestic industries through expanded PLI schemes and targeted subsidies or tax breaks for exporters facing tariff pressures.
- Enhance export competitiveness by investing heavily in logistics infrastructure and focusing on high-value-added exports like semiconductors and renewable energy technology.
- Diversify trade partnerships by strengthening economic ties with emerging markets such as Africa and Latin America while finalizing Free Trade Agreements (FTAs) with key partners like the EU and UK.
- Address employment concerns through skill development initiatives tailored specifically for industries facing disruption due to tariff changes.
- Continue diplomatic engagement with U.S. officials to negotiate favorable terms while addressing broader concerns over market access and visa restrictions.
Conclusion
The imposition of reciprocal tariffs by the U.S., starting April 2, 2025, poses significant challenges across India's economy, particularly affecting IT services, pharmaceuticals, gems and jewelry, agriculture, and automobiles. While these measures threaten key industries' competitiveness in their largest export market and increase competition domestically from cheaper U.S.-made goods, proactive strategies can help mitigate their impact. By adopting a balanced approach that strengthens domestic industries while fostering international partnerships through diplomacy and diversification efforts, India can navigate these turbulent waters effectively while ensuring long-term economic resilience post-April 2025.
[Major General Dr Dilawar Singh is an Indian Army veteran who has led the Indian Army's Financial Management, training and research divisions introducing numerous initiatives therein. He is the Senior Vice President of the Global Economist Forum AO ECOSOC, United Nations and The Co President of the Global Development Bank. He is passionate for advocacy for Fintech incorporation for enhancement of financial transparency, efficiency of finmanagement and societal inclusive banking.]
