'US tariff cut may lift GDP by 20-30 bps', say economists

Core Insights - The US government's decision to reduce tariffs on Indian goods is expected to positively impact several sectors, particularly gems & jewellery, textiles, and marine products, which have seen a decline in exports to the US in the first eight months of the fiscal year [1][14]. Tariff Changes - US tariffs on Indian goods will be lowered from 50% to 18%, with the effective tariff rate now at 16.3%, down from 35.7% [2][14]. - The reduction includes a cut in a 25% reciprocal tariff and the removal of a 25% penal tariff on India's purchases of Russian oil [2][14]. Economic Impact - Exports to the US represent approximately 2% of India's GDP, with India exporting $86.5 billion and importing $45.7 billion in FY25 [3][14]. - Economists estimate a potential GDP growth boost of 20-30 basis points for FY27 due to the tariff reductions, with HDFC Bank projecting a growth forecast of 6.9% [3][14]. Competitive Position - The new tariff rates for India are now lower than or comparable to those faced by competing countries such as Vietnam, Bangladesh, Malaysia, and Indonesia, which have tariffs ranging from 19% to 20% [7][14]. - This change is expected to help Indian exports regain competitiveness similar to the conditions before the imposition of high tariffs [7][14]. Currency and Investment Outlook - Easing trade uncertainties may lead to increased foreign investment inflows, providing greater stability to the Indian rupee [9][14]. - The rupee strengthened by approximately 1.5% against the dollar, settling at 90.27, with expectations for USD/INR to be in the range of 90-92 for FY27 [10][14].