The United States is set to impose reciprocal tariffs starting April 2, raising concerns about potential disruptions to Indian exports. While traders remain uneasy about the impact on export-driven sectors, a report by SBI Research suggests that India's economy is resilient enough to withstand these changes with minimal consequences. According to SBI Research, the newly imposed US tariffs are projected to result in only a 3-3.5% decline in Indian exports. Despite the tariff hike, India’s growing exports in both manufacturing and services sectors are expected to compensate for the shortfall.
The report emphasizes that India’s export landscape has diversified significantly in recent years. By increasing value addition in its exported products and establishing alternative supply chain routes, India has created a stronger buffer against potential trade impacts. SBI highlighted India's strategic shift towards new trade corridors, including routes that connect Europe to the US via the Middle East, offering a vital alternative to traditional supply chains. The report also notes that India stands to gain from recent US tariffs on aluminium and steel. Although India holds a relatively modest position in the US steel market, it is among the top 10 aluminium exporters to the country. While India's share of the US aluminium market has declined slightly from 3% to 2.8% between 2018 and 2024, this sector still presents opportunities for growth.
India’s trade balance with the US in these sectors shows a manageable deficit. The trade deficit stands at $13 million for aluminium products and $406 million for steel products. While these numbers are not alarming, SBI Research highlights India’s potential to improve trade in these areas. Another significant focus of the report is India’s ongoing efforts to finalize Free Trade Agreements (FTAs) with key global economies such as the UK, Canada, and the European Union (EU). These FTAs are expected to drive growth in services, digital trade, and sustainable development. SBI predicts that the proposed India-UK FTA alone could boost bilateral trade by $15 billion by 2030. Additionally, India’s strengthening of digital trade infrastructure could contribute a significant $1 trillion to the country’s GDP by 2025. These trade developments are likely to reduce the long-term economic risks posed by the new US tariffs.
Despite the positive outlook for India, the SBI Research report warns of potential economic concerns in the United States. The analysis highlights signs of a possible US economic slowdown, including falling GDP growth, reduced export performance, and lower consumer spending. The report also notes that Total Factor Productivity (TFP) growth in the US has shown a declining trend, while high US wages may further discourage new investment. Additionally, the net savings to GDP ratio in the US has reached its lowest level since 2011, and the second-lowest since 1951. SBI Research concludes that while the reciprocal tariffs are a short-term concern for India, the country’s strong export growth, evolving trade networks, and anticipated FTAs place India in a favorable position to absorb the economic impact. With careful planning and strategic partnerships, India is expected to sustain its economic momentum while expanding global trade relations.
