India's Domestic Focus Shields Economy Amid New Tariffs

India's economy is fortified by its dependence on domestic consumption rather than exports, a strength emphasized by Madan Sabnavis, Chief Economist at Bank of Baroda, amidst the imposition of reciprocal tariffs. During a comprehensive webinar discussing these tariffs' effects, Sabnavis stated that the country's non-export-oriented nature lends greater resilience to external trade shocks.

Following the U.S. President Donald Trump's announcement of a 25% tariff on Indian goods, along with an unspecified penalty, India's economic structure remains advantageous, according to Sabnavis. The potential for an interim India-US trade deal that could have mitigated these heightened tariffs did not come to fruition.

On April 2, 2025, further restrictions were implemented through an executive order for reciprocal tariffs on several trade partners, ranging from 10-50%. Bank of Baroda projects that a 10% decline in exports might reduce GDP by about 0.2%, but their forecasted GDP growth of 6.4-6.6% already accounts for these risks.

Despite a significant export-to-GDP ratio of 21%, with 47% of this in services ensuring some insulation from global shocks, inflation impacts seem controlled. The Consumer Price Index is stable, yet about 10% of the Wholesale Price Index basket could face inflation from imports, potentially squeezing profit margins.

India's current account deficit is expected to remain under 1% of GDP, and while the country relies heavily on the USA for 19.8% of its exports, its import reliance is notably lower at 6.3%. Key industries including electronics, garments, and chemicals may face tariff-induced challenges, awaiting clarity on possible exemptions.

Overall, India's reliance on service exports provides economic cushioning amidst the volatile tariff climate, reinforcing resilience within its trade framework, Sabnavis concluded. (ANI)

(With inputs from agencies.)