India Faces Limited Impact from US Reciprocal Tariffs, Says NITI Aayog's Arvind Virmani

India’s Low Trade Dependence Cushions Blow from US Tariffs​

New Delhi, April 4 — The recently announced 26% reciprocal tariffs by the United States on Indian goods are expected to have a small indirect impact on India, according to NITI Aayog member and noted economist Arvind Virmani. Citing India’s low dependence on foreign trade, Virmani said the domestic economy is well-positioned to weather the initial shock.

The US imposed the tariffs, citing high import duties levied by New Delhi on American goods. However, Virmani emphasized that such measures are calculated based on factors like the US trade deficit with a country and import volumes from it.

Medium and Long-Term Trade Strategy in Place​

Virmani noted that while the tariffs may pose short-term challenges, the first phase of the proposed USA-India Bilateral Trade Agreement (BTA) will help minimize negative effects in the medium term. Over the next 5 to 10 years, the final BTA is expected to unlock significant gains in bilateral trade.

Highlighting the broader economic context, he said global trade, foreign direct investment, and GDP growth are facing headwinds due to increased trade policy uncertainty across countries in recent months.

Tariff Impact Depends on Product Category and Competition​

Explaining the differential impact of tariffs, Virmani classified Indian exports into three categories:

• Exempt goods (e.g., pharmaceuticals): minimal or no effect
• Exports with major competition from EU or Latin America: possible decline in demand
• Exports competing with East and Southeast Asia: potential increase in demand for Indian goods

This nuanced impact indicates that not all sectors will be equally affected.

Tariffs to Have Deflationary, Not Inflationary, Effect​

Responding to concerns over inflation, Virmani clarified that such tariffs typically have a deflationary effect, reducing demand for imports. As US imports from various countries decline, those nations may lower export prices to remain competitive in other markets.

However, he cautioned that supply-side disruptions could trigger price surges in certain goods, with uncertain overall inflationary consequences.

Turning Crisis into Opportunity​

On whether India can turn this into an advantage, Virmani remained optimistic:

“Every challenge is an opportunity, and this one is no different.”

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He referenced ongoing discussions between the US and Indian leadership focused on increasing trade volumes and strengthening supply chains through a mutually beneficial BTA.

Tariffs Revised Down to 26%, Effective April 9​

According to updated White House documentation, the US has revised the proposed duty on India from 27% to 26%, effective April 9. The announcement came as President Donald Trump presented a tariff chart highlighting rates applicable to countries including India, China, the UK, and the European Union.

The chart claimed India levied a 52% tariff on US goods, including elements like currency manipulation and trade barriers, prompting the US to respond with a discounted reciprocal tariff.

Trade Surplus and Export Highlights​

India recorded a USD 35.32 billion trade surplus with the US in FY 2023-24, up from USD 27.7 billion the previous year. Key Indian exports to the US included:

• Drug formulations and biologicals – USD 8.1 billion
• Telecom instruments – USD 6.5 billion
• Precious and semi-precious stones – USD 5.3 billion
• Petroleum products – USD 4.1 billion
• Jewellery and garments – USD 6 billion combined

Imports from the US largely consisted of:

• Crude oil and petroleum – USD 8.1 billion
• Coal, coke – USD 3.4 billion
• Diamonds, aircraft parts, electric machinery, and gold – USD 6.6 billion combined

As trade dynamics evolve, India's strategic response through targeted agreements and diversification could mitigate risks and leverage emerging opportunities.