India’s top officials said they will continue to cut import taxes as the government looks to work around US President Donald Trump’s plan to impose reciprocal tariffs on trading partners.
Weeks after she unveiled sweeping cuts to duties on imports ranging from textiles to motorcycles, Finance Minister Nirmala Sitharaman stated that she will continue the process of reforming the nation’s tariff regime.
“We are building to be an investor-friendly country, and as a result, the duty cuts and the rationalisation that have been announced is a continuing process and we shall keep doing that,” Sitharaman said at an event in Mumbai on Monday.
Economists said India’s higher tariff rate and a $41 billion trade surplus with the US makes the South Asian nation among the most exposed to risks if Trump follows through with plans to impose like-for-like tariffs. Analysts from Mitsubishi UFJ Financial Group Inc said US tariffs on India could rise to above 15 per cent, from around 3 per cent currently, “if full reciprocity were enforced in theory.”
While it’s still unclear how the Trump administration will calculate tit-for-tat levies, if the US were to impose a 20 per cent flat tariff on Indian exports, it could result in a loss of 50 basis points to gross domestic product, according to Soumya Kanti Ghosh, chief economic adviser at State Bank of India. An average hike of 15-20 per cent in tariffs could reduce India’s overall exports to the US by 3-3.5 per cent, he said.
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Prime Minister Narendra Modi is keen to avoid any further slowdown in the economy, which is already growing at its weakest pace since the pandemic. To head off a potential trade war with its biggest trading partner, New Delhi has delivered a rapid series of concessions to the White House on issues core to Trump’s agenda. That process is likely to continue in the coming months, officials signalled this week.
At the Trump-Modi summit last week, both leaders agreed to seal a trade deal as soon as fall of 2025. India’s Commerce and Industry Minister Piyush Goyal said Tuesday both countries will aim to finalise a trade deal within eight months, a tall order given the two sides were unable to clinch a similar agreement during Trump’s first term in office.
Both sides also pledged last week to boost bilateral trade to $500 billion by 2030, with Washington pushing New Delhi to purchase more energy and defence equipment. The joint statement released after the leaders’ meeting also outlined plans for India to export more labour-intensive manufactured products to the US and to increase agricultural trade.
The two nations will aim for a reduction of tariffs in coming months, an Indian official told reporters on background Monday, asking not to be identified in order to discuss internal matters. New Delhi will wait to see what measures the US imposes, but will work on a trade pact that’s beneficial to both parties, the official said.
Indian officials have also been attempting to fight the narrative that the country imposes unreasonable tariffs. At the Mumbai event on Monday, Finance Secretary Tuhin Kanta Pandey said that the country has tariff rates of under 3 per cent on “30 most important imports into India.” The higher duties are on “very few products,” he said, adding that those “things probably will get sorted out” during negotiations with the US.
Samiran Chakraborty, an economist at Citigroup Inc., said estimating the potential effect of reciprocal tariffs on India’s economy was “extremely complex” given the lack of clarity on how it would be implemented.
While the direct effect would be on exports, “of greater concern is the impact of the ‘tariff uncertainty’, which can act as a strong negative supply-side shock on private investment,” he wrote in a note. “This would not only affect the export-oriented sectors but could potentially spread to other sectors.”
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