Experts have raised concerns that India’s economy could take a hit after former US President Donald Trump announced a 25% tariff on all Indian imports, starting from August 1. In addition to the tariff, Trump also announced an unspecified penalty on India for buying crude oil and military equipment from Russia.
Aditi Nayar, chief economist at ICRA, said the new tariffs are higher than expected and will likely slow down India’s GDP growth. “When the US first imposed tariffs, we had already reduced our GDP growth forecast to 6.2% for FY26. The newly proposed tariff and penalty are steeper, and their full impact will depend on the final size of the penalties,” she said.
Trump’s announcement came just a day after Indian officials confirmed that a US delegation would visit India on August 25 to discuss a long-awaited trade deal. Agneshwar Sen, EY India’s trade policy leader, said both countries are still positively engaged in talks. “Given the long history of cooperation, we hope both sides will resolve these issues and reach a mutually beneficial agreement soon,” he added.
The sectors likely to be most affected include textiles, leather, pharmaceuticals, automobiles, and marine exports — areas where India has strong trade ties with the US. The US is India’s largest trading partner and accounts for about 18% of its exports.
Economist Garima Kapoor from Elara Capital pointed out that other countries competing with India, like Vietnam and Indonesia, are facing lower tariffs. “India’s competitors are at a disadvantage too, but not as much. For example, Vietnam faces a 20% tariff, while India is now staring at 25%. This could affect India’s competitiveness,” she said.
The US already applies a 10% base tariff on most Indian goods. It’s still unclear whether this new 25% tariff will be on top of that or replace it. The penalty for buying Russian oil and defence equipment has also not been detailed yet.
India has dramatically increased its oil imports from Russia in recent years. Before the Ukraine war, only 0.2% of India’s oil came from Russia. Now it is 35–40%, making India the second-largest buyer of Russian oil after China.
Rahul Ahluwalia, founder of the Foundation for Economic Development, said the move puts India at a disadvantage compared to Vietnam and China. “A 25% tariff will make Indian products less attractive. India should work towards securing a trade deal as quickly as possible,” he said.
Pavan Choudary, Chairman of the Medical Technology Association of India, called the announcement “strategically misguided.” He said, “India is a sovereign nation and makes its decisions based on national interest. Trying to punish those decisions with trade penalties sends the wrong message and could damage the trust between the two countries.”
Other experts tried to remain hopeful. Rishi Shah from Grant Thornton Bharat said global trade is unpredictable and often changes rapidly. “Markets tend to adapt, and new trade arrangements usually follow. This situation highlights the importance of India’s strategy of maintaining multiple global alliances,” he said.
Still, some warned of possible economic fallout if a deal isn’t reached quickly. “If no agreement is signed by September or October, India’s GDP could fall by 20 basis points,” Garima Kapoor said.
Investor confidence is also expected to dip in affected sectors. Utsav Verma from Choice Broking said sectors like pharma, textiles, and auto parts may face reduced investor interest in the short term. “But if both sides show political will, the deal could still happen. Many investors expect the final tariff to settle at around 15%,” he added.
India’s trade surplus with the US has been strong in recent years. In 2024–25, bilateral trade reached $186 billion, with India exporting $86.5 billion worth of goods and importing $45.3 billion. India also had a $3.2 billion surplus in services, bringing the total trade surplus with the US to about $44.4 billion.
Top Indian exports to the US include drug formulations, telecom instruments, jewellery, auto parts, and petroleum products. The US imports crude oil, coal, diamonds, aircraft parts, and gold from India.
As the August 25 talks approach, Indian officials and business leaders are hoping the new tariffs will be negotiated down before they start causing major economic damage.
