The recent tariff increase imposed by the United States on certain goods has stirred considerable concern globally. However, India, with its strong economic fundamentals and strategic advantages, is likely to emerge relatively less impacted. Here’s why:
1. Modest Impact on India’s GDP:
While India exported goods worth $89.81 billion to the US in 2024, this figure accounts for just about 2% of India’s GDP.
2. Competitive Advantage from Tariff Gap
India’s primary competitors, including China and Vietnam, have been major exporters to the US. With the US tariff hikes potentially affecting these nations more, India stands to gain from the widening tariff gap.
US businesses look for alternatives; India’s tariff advantage makes it an increasingly attractive trade partner, especially in sectors where India is already a competitive player.
3. Declining Crude Oil Prices: A Major Economic Boon
The sharp decline in crude oil prices is another factor benefiting India. According to a report by Bank of America Securities, a 20% drop in crude oil prices could lead to annual savings of approximately $13 billion for every $10 per barrel decrease. These savings may outweigh any losses resulting from US tariff hikes, if crude remains down.
4. Shift from US Exceptionalism
The US, over the last few years, has seen massive inflows of equity capital, a trend often referred to as “US exceptionalism.” However, the economic slowdown triggered by the negative effects of tariff hikes and other challenges may signal the beginning of a shift. As US growth slows, the attraction of emerging economies like India becomes even more pronounced. Countries with robust domestic markets and resilience, including India, are poised to become more favorable investment destinations.
5. India’s Resilient Economy and Future Outlook
Despite the US tariff increase, India’s economy remains robust and is well-positioned to weather these challenges. With a growing middle class, expanding manufacturing capabilities, and a strong IT sector, India continues to present immense opportunities for both domestic and foreign investors. As global economic patterns evolve, India’s resilience, strategic advantages, and increasingly competitive position make it a strong contender for greater trade and investment.
6. Potential for Softening in US Tariff Policy
Though a lot remains to be seen in the near future, President Trump may not withstand the massive backlash coming from trading nations worldwide. The global sentiment against the tariff hikes is strong, with calls for boycotting US brands and goods growing louder. Trump has shown openness to renegotiating trade terms, indicating that there might be a softening of policies in the coming days.
While US tariff increases may impact certain sectors, the overall effect on India’s economy will be minimal. Coupled with falling oil prices and India’s competitive advantage in the global market, the country is set to continue its economic ascent in the long term.
