Earlier than transferring on to how India may acquire from the tariffs, we must always acknowledge that there might be some affect, albeit oblique and minimal. India’s exports would really feel the pinch if international commerce and progress decelerate amid rising commerce tensions. Nonetheless, there may be close to consensus that this occasion will almost certainly be transient except it evolves right into a full-scale commerce recalibration.
India’s publicity to the US has grown through the years, with FY24 exports of $77.5 billion, however the majority of those are in classes the place India is both not simply substitutable or the place US shoppers would bear the price of tariffs.
“Except it triggers retaliatory spirals or disrupts provide chains, that is extra bark than chew. That mentioned, the long-term implication is that India should transfer up the worth chain and diversify its export base if such frictions develop into extra frequent,” mentioned Sonam Srivastava, Founder and Fund Supervisor at Wright Analysis.
Listed here are three the explanation why India may acquire from the tariff conflict.
Robust domestic-focused financial system
India’s domestically pushed financial system might supply some resilience to Trump’s tariffs, with exports of products and providers accounting for 21% of GDP as of FY24. The truth is, the share of products exports alone is even decrease, at 12% of GDP.Regardless that the precise nature of reciprocal tariffs shouldn’t be clear, most analysts are assuming wherever between 6.5% to eight% further tariffs on India’s exports to US. If this assumption is appropriate, CareEdge Scores says India’s direct export loss from such tariffs may very well be restricted to round $3.1 billion yearly, which is simply 0.1% of GDP.In distinction, another Asian economies, resembling Thailand, have a a lot bigger export dependency, with items and providers exports accounting for round 60% of GDP. Due to this fact, the hit may very well be a lot greater.
Age-old cliché: China’s loss is India’s acquire
It must be famous that the reciprocal tariffs are usually not just for India, however for different nations too. The truth is, the affect of those tariffs on nations like China might be far greater.
Presently, the US imports 10.5% from China, whereas India represents solely 2.5% of US commerce. Additionally, India-US commerce has grown at 5% CAGR from 2014 to 2022, in accordance with World Financial institution knowledge. For the reason that US imports almost 15% of its items from China, these tariffs may have a big unfavourable affect on China.
“This might create alternatives for India by doubtlessly growing its export numbers, as any tariffs imposed would possible be decrease than these on China, giving India a aggressive benefit,” mentioned Chethan Shenoy, Director & Head – Product & Analysis, Anand Rathi Wealth.
Cushioning components within the face of tariffs
India is having sturdy GDP progress potential, with an estimated progress fee of 6.6% for FY25. Inflation stays below management with CPI inflation for February 3.6% from 4.31% in January 2025 with quarterly common CPI beneath the RBI’s preliminary projection of 4.4%.
India can be having a powerful fiscal place with FY25 fiscal deficit revised right down to 4.8% from 4.9%. Market valuations seem affordable with no main froth in Indian fairness markets.
Based on Shenoy, earnings for Nifty 50 and huge caps are projected at 10% for FY25 and 14% for FY26, whereas small and mid-caps are anticipated to develop at 22% in FY25. “We are able to count on Nifty 50 to ship a CAGR of 11-13% over the medium time period given the sturdy macroeconomic and earnings progress outlook.”
(Disclaimer: Suggestions, strategies, views and opinions given by the consultants are their very own. These don’t signify the views of Financial Occasions)
