Why Trump's 50% Tariffs May Not Hurt India's Growth, S&P Rating Explains
US President Donald Trump's punitive tariffs on Indian imports will not impact India's economic growth, and its sovereign ratings outlook will remain positive, according to S&P Global Ratings Director YeeFarn Phua.
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New Delhi:
According to S&P Global Ratings Director YeeFarn Phua, the punitive tariffs imposed by US President Donald Trump on Indian imports will not affect India's economic growth, and its sovereign ratings outlook will continue to be positive. New Delhi currently faces a 50 percent US tariff—25 percent implemented on August 7 with another 25 percent scheduled for August 28—as a penalty for purchasing Russian oil.
During a Wednesday webinar on Asia-Pacific sovereign ratings, Phua clarified that India is not heavily dependent on trade, with exports to the US representing only about 2 percent of India's GDP (gross domestic product).
Why US Tariffs Are Unlikely To Impact India's Economic Growth
"I don't believe the tariffs imposed on India will significantly affect economic growth, primarily because India isn't a very trade-oriented economy. When examining India's exposure to the US in terms of exports to GDP, it's only around 2 percent," Phua explained, addressing concerns about potential risks to India's positive outlook.
In May last year, S&P upgraded the outlook on India's 'BBB-' sovereign rating to positive, citing strong economic growth. According to S&P's latest forecasts, India's GDP growth will maintain a steady 6.5 percent in the current fiscal year, matching the previous year's performance.
YeeFarn also pointed out that major export sectors to the US, including pharmaceuticals and consumer electronics, are exempt from these tariffs.
"In the long term, we don't anticipate these higher tariffs will significantly impact India's economy, thus the positive outlook for India remains unchanged," he stated.
When questioned if US tariffs would affect investment flows into India, the S&P Director noted that businesses have been implementing the 'China plus one' strategy over recent years, establishing operations in India primarily to serve domestic demand.
"Many businesses aren't investing in India solely to export to the US. They're attracted by India's enormous domestic market. The emerging middle class continues to expand...So even for investors looking to establish export operations in India, the US market might not necessarily be their primary target," YeeFarn explained.
India-US Trade Relations
During 2021-25, the United States served as India's largest trading partner. The US accounts for approximately 18 percent of India's total goods exports, 6.22 percent of imports, and 10.73 percent of bilateral trade.
In trade with America, India maintained a surplus (the difference between exports and imports) of USD 35.32 billion in goods during 2023-24. This surplus reached USD 41 billion in 2024-25.
For the 2024-25 period, bilateral trade between India and the US totaled USD 186 billion. India exported goods valued at USD 86.5 billion while imports amounted to USD 45.3 billion.