US’ reciprocal tariffs to have limited impact on India: SBI

The impact of the US’ reciprocal tariffs on India’s exports are expected to be minimal, SBI said Monday, adding that overall incremental tariff of 15-20% would still limit the impact on exports to the US only in the range of 3-3.5%.

“While there is a lot of white noise and froth in the broader markets regarding the extent of impact of tariff on India under proposed ‘Fair & Reciprocal Plan’ that seeks to correct (from US perspectives) longstanding imbalances in international trade and ensure fairness across the board, we understand the overall bilateral negotiations provide a collateral benefit to India,”Economic Research Department, State Bank of India said in a report.

This collateral benefit would happen through fostering a conducive environment of cooperative dynamism across Defence, Energy Security, Innovations, Technology, Critical Minerals, Maritime Security, Investments and Higher Education.


“Also, we believe the flexibility shown by the leadership/policy makers should reduce the
overall incremental tariff levels close to 15-20% and that would limit the impact on exports in the range of 3-3.5%,” it said.

This limited impact should be negated through higher export goals across both manufacturing and services fronts, as India has diversified its exports kitty, pitched value addition, exploring alternate areas and works on new routes that transcend from Europe to USA via the Middle-East, redrawing new supply chain algorithms, it added.

As per the report, both India and the US have adjusted their tariff structures over the years, reflecting evolving trade policies and economic priorities. While US tariffs on Indian exports have remained relatively stable, India's tariff adjustments appear to be more dynamic, according to a report.

The US tariff rate on Indian goods increased to 3.91% in 2021 from 2.72% in 2018 while India's tariffs on American imports have risen to 15.3% in 2022 from 11.59% in 2018.

“However, the sector specific impact will be different with various sectors likely to be affected differentially based on their respective elasticities,” it said.

It highlighted that the exchange rate depreciation needs to be tweaked since many of the Indian exporters are using the advance payments and FCNR(B) loans as also proceeds received from other obligations and deposited in EEFC accounts to cushion from exchange rate impact… clearly.

Non-tariff barriers
Nomura highlighted that India also ranks high in non-tariff barriers besides high tariffs. It said thay the US has raised concerns at the opaque and unpredictable nature of quantitative import restrictions imposed by India, onerous process of obtaining import licenses for remanufactured goods, customs barriers, medical device price controls, ethanol import restrictions, domestic agricultural subsidies which distort markets, technical barriers to trade, alcoholic beverage-related regulations, and mandatory domestic testing and certification requirements.

Quoting World Trade Organization data, it said China and India have the highest non-tariff barriers in Asia with both countries using antidumping measures as a retaliatory tool.

Non-tariff measures against the US are also high for Japan, Australia, the Philippines, South Korea, which have primarily used sanitary and phytosanitary measures.