A research report by the Union Bank of India suggests that India’s economy may be shielded from the full impact of US trade tensions due to its trade balance with the US. However, the final impact will depend on the contours of a trade deal between the two nations. The Indian Rupee has weakened by about 2% this year, despite the US dollar remaining weak. The Reserve Bank of India (RBI) has been working to combat the indirect impacts on liquidity and financial stability.
A slowdown in the global economy poses risks, but India may partially offset the impact through a weaker currency and lower oil prices. Higher tariffs on intermediate goods can increase production costs, leading to reduced profit margins for producers. India’s key exports, such as automobiles, gems and jewelry, steel, aluminum, pharmaceuticals, and textiles, are heavily dependent on the US market.
If US protectionist policies lead to retaliatory tariffs or import substitution measures from India, it could disrupt trade flows and impact businesses. Commodity-linked sectors, such as energy and metal producers, face unique challenges and opportunities due to global price fluctuations. Markets and investors remain cautious due to President Trump’s shifting stance on trade policies, which has created economic uncertainty.
Concerns over a potential US recession have resurfaced, with weaker consumer spending, declining business confidence, and unpredictable policy decisions affecting growth projections. The five-year breakeven inflation rate in the US has risen from 1.9% in September 2024 to 2.6% in February 2025, indicating higher inflation expectations. The report concludes that India’s policymakers must navigate these uncertainties to maintain stability and growth, while a trade deal with the US will be crucial in mitigating the impact of trade tensions.