MUMBAI: Though no clarity is available on how much incremental reciprocal tariffs that the US may slap on Indian goods, an SBI Research report has fathomed that “in a highly unlikely event” of “a flat 20% additional tariff on all goods” leaving our shores to the US ports would eat half a percentage off the GDP next fiscal.
With a 17.7% of all our exports headed to the American shores, the US was the largest trading partner for the country in FY24. In fact the share of our exports to the US has been steadily rising over the years, the report said, citing RBI data.
The share of the US in our total merchandise shipments rose from 16.9% in FY20 to 17.7% next year, and further to 18% in FY22, which marginally declined to 17.4% in FY23 and inched up to 17.7% last fiscal. Given the tepid show by exports so far this fiscal it may stay at the current level of fall a bit.
The country’s exports (merchandise and services shipments combined) touched a record $776.7 billion in FY24, a 0.04% growth over the previous year, taking our share in world merchandise exports to 1.81%. Of the total, services exports grew to $341.1 billion in FY24 from $325.3 billion in FY23.
In a detailed report—days after the bilateral meeting at the highest level over the weekend—Soumyakanti Ghosh, the chief economic advisor to SBI said Monday, “a simulated impact of a 20% flat tariff on Indian exports to result in loss of 50 bps to GDP, which is a highly unlikely scenario.”
Stating that tariff reciprocity may turn out be more of white noise, Ghosh said “our estimates show overall incremental tariff levels even at 15-20% imposed by the US would still limit the impact on exports to the US only in the range of 3-3.5% which again should be negated through higher export goals.
He also suggests given our diversified exports kitty, the government should pitch our value addition, explore alternate new routes that transcend from Europe to the US via the Middle-East, and redraw new supply-chain algorithms that foster strategic inclusivity.
He also expects the bilateral negotiations to provide more collateral benefits to us than the US if we are able to foster a conducive environment of cooperative dynamism across defence, energy security, innovations, technology, critical minerals, maritime security, investments and higher education among others.
His optimism comes from the flexibility shown by the leadership/policymakers which should reduce the overall incremental tariff levels close to 15-20% and that would limit the impact on exports in the range of 3-3.5% which again should be negated through higher export goals across both manufacturing and services fronts.
The US tariff rate on Indian goods increased from 2.72% in 2018 to 3.91% in 2021, before slightly declining to 3.83% in 2022, while Indian tariffs on US goods have risen from 11.59% in 2018 to 15.30% in 2022.
We have also estimated the likely fall in Indian exports if the US imposes a retaliatory tariff of 15% (3x the present aggregate) on our goods. If the tariffs on India for 2022 was 3.8%, which may edge up to 4% in the intermittent period, a rise to 15% rise in tariffs may lead to a 3% decline in our exports to the US, taking into account exchange rate depreciation, Ghosh said.