US tariff impact on India likely to be 0.3-0.4% of GDP: Care Ratings

India’s largely domestic-driven economy and its relatively low share of goods exports to the United States (at about 2 per cent of GDP) should provide some cushion. Moreover, India’s services exports remain outside the scope of these tariffs and should continue to support the external sector, the rating agency noted.

India’s exports of merchandise and services account for 21 per cent of GDP as of FY25, should offer some comfort. Furthermore, the share of merchandise exports alone is lower at 11 per cent of GDP.

In contrast, several other Asian economies exhibit significantly higher merchandise and services export dependency, such as Thailand (at 70 per cent of GDP) and Vietnam (at 86 per cent).

However, indirect spillovers through weaker investor sentiment, capital outflows and currency pressures cannot be ruled out in vase of India, the rating agency noted.

Though India-US trade negotiations are expected to continue and could bring some relief, India is likely to remain cautious about opening sensitive sectors like agriculture and dairy, suggesting that the talks may take some time to conclude, Care Ratings said.

Against this backdrop, it is too early to determine the clear winners and losers from the evolving tariff landscape, it observed.

Persistent weakness in the global demand scenario amid ongoing tariff restrictions is expected to weigh on India’s merchandise export performance, which is projected to contract by nearly 4 per cent in FY26.

The decline is expected mainly due to a sharp contraction in the value of oil exports (by around 15.5 per cent), while non-oil exports are expected to contract only mildly (by around 0.8 per cent), Care Ratings said.

It projected India’s current account deficit (CAD) to remain manageable at 0.9 per cent of GDP in FY26.

Any diversification in India’s oil imports away from Russia is expected to have a minimal impact on India’s CAD, as the price differential between Russian ural and brent crude has significantly narrowed to around $3 per barrel from an average of $20 per barrel in 2023, it added.

ALCHEMPro News Desk (DS)