Trump tariffs cast a pall of gloom over India's exports, investments and Rupee

US President Donald Trump's move to double tariffs on Indian goods has escalated worries about its impact on India's export competitiveness, economic growth, investor sentiment, and currency.

While economists warn that the steep tariffs could sharply dent India's gross domestic product (GDP) growth, they believe negotiations between the two countries could avert this severe fallout.

President Trump Wednesday announced an additional duty of 25% on Indian goods, as a penalty for importing oil from Russia, taking total tariffs to 50%.


The 25% additional tariff will be effective August 27. Russia currently accounts for more than a third of India's crude imports while US has about a 4% share.

Morgan Stanley estimates that if the 50% tariff remains in place for 12 months, it could reduce India's GDP growth by 40-80 basis points. In a separate note, Goldman Sachs projected a 30 basis points incremental drag on GDP from the new tariff, adding to a similar impact from the earlier 25% duty.

Nomura estimates the impact on India's GDP growth to exceed its earlier estimate of a downside risk of 20 basis points to FY26 GDP growth of 6.2%.

With the tariff rate now far higher than those faced by competitors such as Vietnam (20%), Bangladesh (20%), and Thailand (19%), India risks losing its export competitiveness.

Nomura warns that if the steep 50% tariff is implemented, it would be like a trade embargo and trigger a sudden halt in exports of the affected products from India.

"The lower value addition and thinner margins across industries (textiles, gem & jewellery) could jeopardise operations, especially of smaller firms that will struggle to compete," said Nomura.

The trade-weighted tariff on US imports from India will rise to 35.6% after August 27, from 20.6% after August 8, and 11.6% currently. It was 2.7% at the start of 2025.

Economists are however hopeful that ongoing talks between the two nations will result in a de-escalation of the crisis.

"This secondary tariff, if implemented, would certainly dent India's growth outlook, but we believe that this announcement is a continuation of pressure tactics, and final US tariffs on India will settle in lower than the announced 50% rate," said Aastha Gudwani, India chief economist at Barclays.

In FY25, India's total exports to the US stood at $86.5 billion or 2.2% of GDP. "The original 25% tariff and the additional penalty are both applicable on 67% of India's exports to the US, which translates to $58bn (1.5% of GDP)," noted Morgan Stanley.

While the tariffs may not have a direct impact, they can pose indirect risks.

"However, indirect spillovers through weaker investor sentiment, capital outflows and currency pressure cannot be ruled out," said Rajani Sinha, chief economist at CareEdge Ratings.

"The rupee has depreciated by about 2% over the past month, making it one of Asia's worst performers, reflecting concerns around the tariff announcement and ongoing foreign portfolio outflows."

The Reserve Bank of India (RBI) could however intervene if the rupee weakens further.

"Looking ahead, currency pressures could ease if the US dollar weakens, expectations of Fed rate cuts firm up, and a US-India trade deal takes shape. In the meantime, RBI is likely to intervene to limit currency volatility," said Sinha.