US tariffs may dent India’s growth, manufacturing edge

Washington’s decision to double tariffs on Indian goods to about 50% risks denting investment flows, eroding manufacturing competitiveness, and cutting GDP growth by as much as 0.3 percentage points, economists and banks warned.

The additional 25% “ad valorem” duty, signed into effect by US President Donald Trump and due to take effect on 27 August, is aimed at penalizing India’s continued purchases of Russian crude oil.

While the headline rate is 50%, Goldman Sachs estimates the effective tariff after exemptions will be closer to 32 percentage points. Commodities covered under Section 232 of the US Trade Expansion Act, such as certain metals, are excluded.

India’s ministry of external affairs said the government “will take all actions necessary to protect its national interests.”

The US accounts for about 4% of India’s crude oil imports, while Russia supplies roughly a third.

Goldman Sachs said India’s exposure to US final demand in goods is around 4% of GDP, with a goods export demand elasticity of about 0.5. That puts the incremental drag from the latest duty at roughly 0.3 percentage points if fully enforced—on top of an earlier 0.3-point hit from the first round of tariffs announced in early August.

“We see downside risks to our growth estimates for both CY25 and CY26, but are not making any changes… given the three-week window for negotiations,” the bank said.

Moody’s Ratings projected a similar GDP impact and warned that prolonged high tariffs could “undermine India’s manufacturing competitiveness, especially in electronics” and reverse recent investment gains.

IDFC Bank said the hit could be 30–40 basis points if tariffs remain until March 2026, with exports of textiles, gems and jewelry, and electronics most exposed.

The US is India’s largest single export market, taking about $64 billion in goods in FY 2024–25, roughly 20% of India’s total exports and 2% of GDP.

While pharmaceuticals and some electronics remain exempt for now, analysts warned that the tariff disparity with other Asia-Pacific nations could deter new investment.

Officials in Delhi are seeking to blunt the impact by accelerating trade talks with other countries, and by offering targeted subsidies and incentives to vulnerable sectors.

Large foreign-exchange reserves and a resilient services sector provide some buffer, but policymakers face a delicate balance between protecting growth and preserving strategic energy ties with Moscow.