India’s economy is expected to remain resilient even if the United States imposes tariffs of up to 25 percent on Indian exports, as the country’s large domestic market and low export-to-GDP ratio offer a buffer against external shocks. Economists and recent reports suggest that while the absence of a finalized bilateral trade agreement with the US by August 1 could trigger tariff hikes, the macroeconomic impact on India will be limited.
A Morgan Stanley report identified India as the “best placed country in Asia” amid global trade uncertainty, citing its lowest goods exports to GDP ratio in the region. The report noted that although India faces direct tariff risks, its limited dependence on global goods trade reduces vulnerability to a slowdown.
Fitch Ratings echoed this view, stating that India’s expansive domestic market would insulate the economy from tariff pressures, projecting a growth rate of 6.5 percent for FY26. Economists also emphasized that India’s export competitiveness will hinge on how its tariff exposure compares with other major exporters like China.
Meanwhile, US and Chinese officials have agreed to seek an extension of their 90-day tariff truce following talks in Stockholm, as the trade war threatens to escalate to triple-digit tariff levels. China is leveraging its control over rare metals, while US negotiators have indicated that President Donald Trump will make the final decision.
India and the US have been engaged in trade negotiations for several months, with a high-level delegation led by chief negotiator Rajesh Agrawal recently returning from Washington without a final agreement. Talks have stalled over US demands for greater market access for agricultural and dairy products—areas India considers sensitive due to the livelihood concerns of small farmers.
India is aiming to secure an exemption from Trump’s proposed 26 percent tariffs by concluding an interim deal before the August 1 deadline. In return, India is seeking tariff concessions for its labour-intensive exports such as textiles, leather, and footwear. The agreement is also expected to facilitate increased imports of energy products and defence equipment from the US.
According to SBI Research, India’s exports to the US account for only 4 percent of GDP, suggesting that the direct impact of tariff hikes will be limited. The share of US-bound exports has been declining since FY23, currently comprising around 17 to 18 percent of India’s total exports. The top 15 export items to the US represent 63 percent of this trade.
Commenting on the trade talks, Trump said, “India has been a good friend, but India has charged basically more tariffs than almost any other country. But now I’m in charge, and you just can’t do that.”
