What impact will Trump's 50% tariffs have on Indian economy? Analysts explain

US President Donald Trump’s decision to double tariffs on Indian goods to 50% could deliver a blow to India's economy, with analysts warning of a potential 1% hit to the country’s gross domestic product.

US President Donald Trump meets with Indian Prime Minister Narendra Modi at the White House in Washington, DC.(Reuters File)

The move, announced Thursday, is aimed at penalizing India for continuing to purchase oil from Russia. According to Bloomberg Economics, the new tariffs, which take effect in 21 days, are higher than those imposed on India’s export competitors like Vietnam and even China, and could slash outbound shipments to the US by as much as 60%.

“The overall hit to GDP could be even higher at 1.1% over the medium term,” Bloomberg analysts Chetna Kumar and Adam Farrar wrote, adding that further levies on sectors such as pharmaceuticals and electronics could deepen the impact.

India’s central bank projects 6.5% GDP growth for the 2025-26 fiscal year - unchanged from the previous year and well below the average 8% growth seen in earlier periods. A full percentage-point loss would mark a setback for one of the world's fastest-growing economy.

Labor-intensive industries like textiles, footwear, and gems and jewelry are expected to take the brunt of the tariffs, which analysts warn could render many exports uncompetitive in the US market.

Sonal Varma and Aurodeep Nandi, economists at Nomura Holdings Inc, said the 50% tariff “will be similar to a trade embargo, and will lead to a sudden stop in affected export products.”

Citigroup's Samiran Chakraborty warned that the impact may be worse than current estimates. “Exports will become economically unviable,” he said, noting that a linear projection “might be an underestimation.”

Chakraborty also flagged broader economic implications. “India’s current and capital account flows too will feel the strain,” he said, adding that the Reserve Bank of India may need to step in to stabilize the rupee, which is hovering near record lows. Citigroup estimates the tariffs could result in a 0.6 to 0.8 percentage point downside to India’s annual growth.

Trump's slaps high tariffs on India

The remarks come hours after Trump signed an executive order on Wednesday doubling India tariff to 50 per cent, announcing an additional 25 per cent duties over Russian oil purchase, according to the White House website.

Trump had already imposed a 25 per cent tariff on Indian goods going to the US. However, with this announcement, the tariff against India has now been increased to 50 per cent.

Indian government, responding to Trump's move, called the tariffs 'unfair, unjustified' and criticised the US for singling out India while other nations also continue to import oil from Russia.

“If the US becomes difficult to export to, we will look at other opportunities,” Dammu Ravi, Secretary for Economic Relations at the Ministry of External Affairs said, pointing to South Asia, Africa, and Latin America as potential markets. “It’s very natural for countries to look for alternatives when you are affected by a wall of tariffs in any part of the world.”