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India faces steep tariffs of up to 50 per cent from the US, including a 25 per cent penalty on crude oil imports from Russia, which could affect GDP growth by around 0.2-0.3 per cent this financial year. Chief Economic Adviser V Anantha Nageswaran said that the recent GST reforms would help offset these impacts by boosting domestic demand. The reforms include a move to a two-slab system of 5 per cent and 18 per cent, along with a 40 per cent rate on luxury and sin goods, making nearly 400 products cheaper. Key sectors like textiles, gems, leather, and machinery are most affected, while pharma, energy, and electronics remain largely exempt.
India is adjusting to the effects of high tariffs imposed by the United States on its exports, which include a 50 per cent duty and a 25 per cent penalty for crude oil purchased from Russia. Chief Economic Adviser V Anantha Nageswaran explained that these tariffs may reduce GDP growth by around 0.2-0.3 per cent in the current financial year. He noted that the recently approved GST reforms could help offset the impact by stimulating domestic consumption and supporting businesses affected by the tariffs. Advertisement
The GST Council has introduced a major change in the tax structure, moving from four slabs of 5 per cent, 12 per cent, 18 per cent, and 28 per cent to a simplified two-slab system of 5 per cent and 18 per cent. Additionally, a 40 per cent rate has been set for luxury and sin goods. Nearly 400 products, including soaps, cars, shampoos, tractors, and air conditioners, are expected to become more affordable when these changes take effect from the first day of Navaratri.
Nageswaran highlighted that the GST reforms are particularly important to mitigate the second- and third-round effects of tariffs, which can impact investments, capital formation, and overall economic sentiment. He added that exports to the US have already reached about half of last year's volume during the first five months of the current financial year, indicating that the immediate effect of the tariffs may be limited. However, if punitive duties continue longer than expected, their impact on uncertainty and investment could become more significant.
The US tariffs have heavily affected labour-intensive sectors such as textiles, clothing, gems and jewellery, shrimp, leather, footwear, animal products, chemicals, and electrical and mechanical machinery. Sectors like pharmaceuticals, energy products, and electronics remain largely outside these duties. The US accounted for around 20 per cent of India's USD 437.42 billion in goods exports during 2024-25, remaining India's largest trading partner since 2021-22. Last year, bilateral trade in goods totaled USD 131.8 billion, with USD 86.5 billion in exports and USD 45.3 billion in imports.
On structural reforms in the domestic economy, Nageswaran pointed out that agriculture still has scope to add 0.5-0.7 per cent more to GDP growth. He emphasized that providing farmers the freedom to sell their produce anywhere, domestically or internationally, along with insurance against natural risks, would improve productivity more effectively than subsidies alone.
Regarding alternate currencies for global trade, Nageswaran clarified that India is not part of any current initiative to replace the dollar. While BRICS nations had discussed cross-border settlements in local currency and the creation of a special BRICS currency at the 16th BRICS Summit in October 2024, India has not actively participated. The BRICS declaration welcomed the use of local currencies in trade while emphasizing transparency, efficiency, and non-discriminatory access. BRICS consists of Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran, and the UAE, aiming to promote coordinated emerging economy perspectives in global forums.
Source PTI
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