Trump’s 25% Tariff Hike on Indian Goods May Dent India’s FY26 GDP Growth by Up to 0.4%, Say Economists

Additional 25% Tariff on Indian Imports Announced

In a controversial and economically consequential move, U.S. President Donald Trump has announced an additional 25% tariff on imports from India. The new levy comes as a retaliatory response to India’s continued import of oil from Russia, and it is poised to take the total U.S. import duty on Indian goods to 50%. The additional tariffs will come into effect after a 21-day notice period, according to the executive order issued by the White House on Wednesday.

GDP Impact Could Reach 0.4% in FY26

According to Sonal Badhan, Economics Specialist at Bank of Baroda, the impact of this steep tariff hike could be significant. “We had initially priced in approximately 0.2% impact on GDP growth due to the 25–26% tariffs already imposed. With this new 25% hike, the impact could rise to 0.4%, depending on whether lower rates are negotiated,” Badhan told ANI.

She further noted that sectors most likely to be affected include garments, precious stones, electronics, pharmaceuticals, auto parts, and MSMEs—areas that contribute meaningfully to Indian exports and employment.

MSMEs and Exporters Face Severe Challenges

Industry experts have expressed serious concerns over the tariff's impact on Indian businesses, particularly MSMEs, which may struggle to absorb the additional costs.

Ajay Bagga, a banking and markets expert, labeled the tariff move a “major blow,” adding, “India is now hit with 50% tariffs. Frankly, once it crossed 25%, it didn’t matter. It could be 1,000% or 5,000%—there’s no trade possible anymore.” He noted that many exporters had already prepared their shipments for Christmas, and disruptions could immediately affect hundreds of thousands of jobs, especially in the textile sector.

The Federation of Indian Export Organisations (FIEO) echoed these concerns. President S.C. Ralhan stated that 55% of Indian shipments to the U.S. are now directly affected, placing Indian exporters at a 30–35% competitive disadvantage. Many buyers have already begun putting orders on hold.

Some Items Exempted from the Tariff List

While the majority of Indian imports into the U.S. are now subject to the 50% tariff, certain categories remain exempt under Annex II of Executive Order 14257. These include mineral substances, metallurgical ores, fuels, industrial chemicals, and pharmaceutical precursors.

Executive Order Cites National Security, Links to Russian Oil

In the official executive order, President Trump cited national security and foreign policy concerns as the basis for the tariff escalation. He stated that India’s direct or indirect import of Russian oil constitutes an “unusual and extraordinary threat” to the United States.

Trump further accused India of buying Russian oil and selling it on the open market for profit, implying that such actions indirectly support Russia's military operations in Ukraine. He added on Truth Social, “India is not only buying massive amounts of Russian oil—they are selling it for big profits. They don't care how many people in Ukraine are being killed.”

India Responds: "Being Unfairly Targeted"

The Ministry of External Affairs (MEA) in India has responded sharply, calling the move unfair, unjustified, and unreasonable. In a formal statement, the MEA pointed out that other countries such as China and Turkey also continue to import Russian oil, yet they have not been subjected to similar tariffs.

India defended its position, stating that its oil purchases are based on strategic national interests and energy security considerations for 1.4 billion citizens. “The U.S. should not single out India for actions that others are also taking,” the MEA added.

Comparative Data Strengthens India’s Case

Data from the Centre for Research on Energy and Clean Air (June 2025) reveals that:

• China bought 47% of Russia’s crude exports

• India accounted for 38%

• EU for 6%

• Turkey for 6%

Furthermore, Turkey was the largest buyer of refined oil products from Russia (26%), while China purchased 13% and Brazil 12%. Despite these statistics, only India has been penalized with additional tariffs, lending credibility to India's argument of being unfairly targeted.

Geopolitical and Trade Tensions Escalate

Trump's tariff escalation marks a serious escalation in trade tensions between the two countries. The executive order provides scope for revision depending on actions taken by India or Russia, or any potential retaliatory steps by affected nations.

The coming weeks are expected to be critical as India explores diplomatic and trade negotiations to secure relief for its exporters and safeguard its economic growth trajectory.

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Conclusion

This unexpected tariff hike by the U.S. has introduced serious uncertainty for India’s export-dependent sectors and overall GDP outlook. With over 50% duty now levied on Indian goods entering the U.S., the pressure is on policymakers and trade negotiators to navigate the fallout, protect MSMEs, and prevent long-term economic disruption. India’s response will also set a precedent for how sovereign economic policies are defended amid rising global protectionism.

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