India can absorb US tariff shocks, says SBI research report; warns of $6 bn export hit but sees long-term resilience

Titled “Stirred… Not Shaken”, the report estimates that the 25% US tariff on select Indian imports — spanning diamonds, pharmaceuticals, electronics, and solar cells — could shave off 25–30 basis points from India’s GDP, but asserts that the country’s macroeconomic fundamentals remain strong.

“The tariff move is disruptive but not destabilising. India’s large domestic market, growing manufacturing base, and policy agility will help it absorb the impact,” the report noted.

SBI Research underscored that India’s diversified export basket, expanding digital infrastructure, and resilient sectors like engineering goods, electronics, and chemicals position it well amid global trade uncertainties.

The report also acknowledged that the US is likely to absorb part of the pain, with its GDP facing a 0.1% drag and household costs rising by an average of $120 a year, due to inflationary pressures from import substitution.

Export impact and GDP cost

The study estimated that the direct impact of the tariff hike on India’s exports to the US could amount to nearly $6 billion, particularly affecting pharmaceuticals and precious metals, which account for 47% of the targeted goods.

Still, in context, this impact remains limited — India’s overall exports to the US stood at $78 billion in FY24, and growth in key categories like electronics (+28% YoY) and engineering goods (+7% YoY) signals strong underlying momentum.

Long-term play: diversification and policy agility

While recognising the headwinds, SBI called for a “mirror tariff strategy” to deter low-value imports and strengthen domestic manufacturing.

Suggested countermeasures include:

Imposing higher duties on non-essential imports like dog food, golf carts, and cosmetics;

Prioritising value-chain development in electronics, solar cells and chemicals;

Tighter scrutiny of FTA frameworks amid shifting geopolitical alignments.

The report also urged enhanced trade engagement with ASEAN, Latin America and Africa, noting that Vietnam and China are expected to bear the brunt of the US tariff escalation — giving India room to diversify and capture market share.

Calm amid disruption

Despite the turbulence, India’s strong macroeconomic footing, rising consumer demand, and policy adaptability serve as buffers.

The report points to steady inflation, improved fiscal dynamics, and robust capital expenditure trends as markers of confidence.

“India is stirred by the US tariff actions — but certainly not shaken,” it concluded.