The recent 25% tariff hike by the US on several Indian exports is likely to shave off 25 to 30 basis points from India’s GDP growth in FY26, according to a new report by SBI Research. Experts warn that the move could bring additional deflationary pressure in the domestic economy due to weaker demand from one of India’s largest export markets.
India’s Export Relationship with the US
The United States is currently India’s largest export destination, accounting for 20% of total exports in FY25. This share has further grown to 22.4% in FY26 so far. Despite this strong trade relationship, SBI’s Economic Research Department (ERD) pointed out that India has diversified its export markets.
The top 10 export destinations for India, which include the US, UAE, Netherlands, UK, China, Singapore, Saudi Arabia, Bangladesh, Germany, and Australia, together make up 53% of India’s total exports. This diversification, the report suggests, will help soften the blow from the US tariff hike.
Key Sectors That Will Be Hit
The US tariff will hit some of India’s biggest export earners, including:
- Electronics
- Gems and Jewelry
- Pharmaceuticals
- Nuclear Reactors and Machinery
Together, these sectors account for 49% of India’s exports to the US.
Previously, tariffs ranged from 0% (on diamonds, smartphones, and certain pharma products) to a maximum of 10.8% (for items like cotton bed linen). Now, all these goods will face a 25% tariff.
Government Policies Boosting Exports
Some export categories had been thriving before the tariff hike, thanks to government initiatives:
- The Production Linked Incentive (PLI) scheme gave a boost to smartphone and solar cell exports.
- Rationalized GST rates on cut and polished diamonds helped gems and jewelry exports grow.
- Robust demand from the US had also been driving machinery and pharma exports.
Economic Impact: A Mixed Picture
Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI, said the move is a “bad business decision” by the US. However, he believes that the global supply chain will eventually adjust and help cushion the blow to India’s economy.
He also suggested that Indian companies should strengthen the “Made in India” brand as a sign of unquestionable quality. Interestingly, Ghosh pointed out that the US economy, including its GDP, inflation outlook, and currency stability, could face greater risks from this tariff decision than India.
Outlook: Adjustments Ahead
While the SBI Research report acknowledges that India’s GDP growth will take a small hit in FY26, it also emphasizes that India’s diverse trade partnerships and adaptability will limit the long-term damage.
The next few months will be crucial to see how Indian exporters and global buyers respond to the higher tariffs, and whether they can find new routes to keep trade flowing despite the higher costs.