The US reciprocal tariffs will have a small indirect effect on India given the domestic economy's low dependence on foreign trade, NITI Aayog member Arvind Virmani said on Friday.
He further said that in the medium term, the negative factors emanating from the imposition of tariff would be minimised with the implementation of the first phase of the proposed USA-India Bilateral Trade Agreement.
In the long term, the eminent economist said the final BTA with US will aim to enhance the potential gains during the next 5 to 10 years.
The US has announced 26 per cent reciprocal tariffs on India saying New Delhi imposes high import duties on American goods.
"This (26 per reciprocal tariffs) will have a small indirect effect on India given our low trade dependence," he said.
Mr Virmani explained that the reciprocal tariffs are calculated by a formula which includes US trade deficit with a country and imports from that country.
He said every country is however feeling the effect of increased trade policy uncertainty during the last few months, adding "world trade, FDI, investment and GDP growth will all be affected." According to Mr Virmani, in the short-medium term, the impact of differential US tariffs depends on the commodity and the relative tariffs on competitors.
"Very broadly, there are three categories; (a) Exempt goods (e.g. Pharmaceuticals): Little or no effect. (b) Exports in which largest competitors in US market are from EU or LAC: Reduce demand for India, (c) Exports in which closest competitors are from East & S.E. Asia, the demand for India would tend to increase," he said.
Responding to a question on impact of reciprocal tariffs on inflation rate, Virmani said, "Other things unchanged, the effect of US tariffs on any one country X, would be to reduce demand for imports from that country and have a deflationary impact (not inflationary)." He observed that to the extent to which US imports from many countries are reduced, all these countries would reduce the prices of their exports to other countries, besides the US.
While noting that the direct effect on the rest of the world is therefore deflationary, Mr Virmani said, "Supply-side disruptions can however produce sharp increase in prices of some goods, whose aggregate inflationary impact is difficult to predict at this point." Asked can India turn this crisis into an opportunity, he said every challenge is an opportunity and this one is no different.
"From the time of the election of the US President many of us have been thinking about how to maximize the benefits and minimize the costs of likely US actions," he said.
According to Mr Virmani, the agreement between US President and Indian Prime Minister to target increased trade and promote supply chains, through a mutually beneficial USA-India Bilateral Trade Agreement, is expected to do that.
The US has revised downwards the import duties to be imposed on India from 27 per cent to 26 per cent, according to a White House document.
These duties will come into force from April 9.
Announcing the reciprocal tariffs against different countries on Wednesday, US President Donald Trump held up a chart that showed the tariffs that countries such as India, China, the UK, and the European Union will now have to pay.
The chart indicated that India charged 52 per cent tariffs, including currency manipulation and trade barriers, and America would now charge India a discounted reciprocal tariff of 26 per cent.
Earlier, the White House documents showed a 27 per cent duty on India.
However, as per the latest updates, it has been revised downwards to 26 per cent With America, India had a trade surplus (the difference between imports and exports) of USD 35.32 billion in goods in 2023-24. This was USD 27.7 billion in 2022-23, USD 32.85 billion in 2021-22, USD 22.73 billion in 2020-21, and USD 17.26 billion in 2019-20.
In 2024, India's main exports to the US included drug formulations and biologicals (USD 8.1 billion), telecom instruments (USD 6.5 billion), precious and semi-precious stones (USD 5.3 billion), petroleum products (USD 4.1 billion), gold and other precious metal jewellery (USD 3.2 billion), ready-made garments of cotton, including accessories (USD 2.8 billion), and products of iron and steel (USD 2.7 billion).
Imports included crude oil (USD 4.5 billion), petroleum products (USD 3.6 billion), coal, coke (USD 3.4 billion), cut and polished diamonds (USD 2.6 billion), electric machinery (USD 1.4 billion), aircraft, spacecraft and parts (USD 1.3 billion), and gold (USD 1.3 billion).
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