NEW DELHI: With the steep 50 per cent American tariffs on Indian goods kicking in, the Union Finance Ministry has said the immediate impact on Indian exports may appear limited, but their secondary and tertiary effects on the economy will pose challenges that must be addressed.
Notably, the steep 50 per cent tariff on Indian goods entering the US would impact exports worth more than USD 48 billion.
The sectors that would bear the brunt of the high import duties imposed by the Trump administration include textiles/clothing, gems and jewelry, shrimp, leather and footwear, animal products, chemicals, and electrical and mechanical machinery.
The Finance Ministry highlighted that the ongoing India-US trade negotiations are critical in addressing these issues, including the secondary and tertiary effects of high tariffs by the US on Indian goods.
In its monthly economic review, the Finance Ministry said that in line with the global shift towards diversification and strategic realignment, India is actively pursuing a diversified trade strategy to sustain its resilient trade performance.
“This includes the recently concluded FTA with the UK and the European Free Trade Association (EFTA) and ongoing Free Trade Agreements (FTAs) negotiations with the US, EU, New Zealand, Chile, and Peru. But these initiatives will take time to show results and may not fully address the shortfall in exports to the US that may arise if the current tariff rates on India persist,” the report added.
India’s economy stands at a critical juncture, the report said, adding that its strong economic performance over the past few years, along with policy stability and high infrastructure investment, has earned it a sovereign rating upgrade by S&P from ‘BBB-‘ to ‘BBB’.
“This upgrade serves as a testament to the economy’s robust macroeconomic fundamentals and ongoing reform initiatives. The assessment comes at a moment when the economy has exhibited considerable resilience in the face of global challenges, with strong domestic demand and prudent policy management contributing to economic stability,” it said.
On the domestic front, the report said that an increased market arrival in Q1, comfortable buffer stocks, and better output prospects, coupled with stable global oil markets, might keep the prices of food grain moderate. “The downside risks to global growth are likely to keep international commodity prices in check, partly offsetting the impact of higher tariffs.”
It is to be noted that the Union Government has already announced the creation of a Task Force for next-generation reforms aimed at further simplifying regulations, lowering compliance costs, and fostering a more enabling environment for startups, MSMEs, and entrepreneurs.
The rollout of GST reforms in the coming months is also likely to provide direct relief to households and boost consumption demand.
Agencies
Trump tariffs: Immediate impact limited, secondary & tertiary effects pose challenges, says FinMin
