A recent report by Bank of Baroda (BoB) suggests that the immediate impact of higher US tariffs on India’s economy is uncertain, but a potential trade deal could mitigate its effects. India’s economy is largely driven by domestic consumption, which accounts for 60% of its GDP. On the other hand, merchandise exports make up only 12% of India’s GDP in FY24. The report assumes a 10% decline in the value of India’s exports to the US, which would lead to a 0.2% impact on India’s GDP growth.
However, the report highlights that exemptions on pharmaceutical products and the possibility of a trade agreement between India and the US could limit the negative impact of the tariffs. A mutually beneficial trade deal could help reduce the impact of higher tariffs, making it a viable solution to mitigate the effects of the US tariffs on India’s economy.
The report suggests that a trade deal could benefit both countries, leading to increased trade and economic growth. India could gain access to the large US market, while the US could benefit from India’s large consumer market and its position as a hub for pharmaceutical exports. The report concludes that a trade deal by the end of this year could limit the impact of higher US tariffs on India’s economy, making it a crucial step in maintaining economic stability and growth in the country.