The Finance Ministry warned that though the short-term impact of the new American tariffs on Indian exports seems to be small, their knock-on effects might pose serious economic problems.
The report highlighted the significance of the ongoing trade negotiations between New Delhi and Washington, stating that the negotiations will be a key factor to deal with the direct as well as indirect effects of the tariffs.
The obligations, effective since August 27, will affect exports valued in excess of $48 billion. Textiles and clothing, gems and jewelry, seafood, leather and footware, animal products, chemicals, and electrical and mechanical appliances are some of the industries most at risk from the Trump administration's increased levies.
"Though the direct effect of recent US tariffs on Indian exports might seem restricted, their secondary and tertiary implications on the economy present challenges that would have to be met. In this regard, the current India-US trade negotiations will be important," the ministry stated.
It also identified short-term threats to economic activity—most notably in exports and capital formation—due to tariff-related uncertainty. Nonetheless, it emphasized that joint efforts by the government and private sector could minimize disruptions.
"Setbacks ultimately make us stronger and more agile, provided that they are managed well. If the short-term economic hurt were shared more by those who have the capability and the financial wherewithal to do it, then small and medium-sized firms in downstream industries will be better placed coming out of the trade imbroglio. This is the time to exhibit an appreciation of national interest," the review said.
The ministry further accentuated that India is embracing a diversified trade policy in order to ensure resilience in the face of evolving global supply chains. This encompasses the recently concluded free trade agreements with the UK and European Free Trade Association, as well as the negotiations in progress with the U.S., European Union, New Zealand, Chile, and Peru. Yet it warned that these agreements would not yield returns quickly and might not even be able to cover potential U.S. market losses in the short term if the higher tariff rates hold.
The review further mentioned India's improved economic fundamentals, referring to S&P's recent upgrade of the Indian country's sovereign rating to 'BBB' from 'BBB-'. "This upgrade reflects the strength of the economy's macroeconomic fundamentals as well as sustained reform efforts. The upgrading comes at a time when the economy has displayed notable resilience against global uncertainties, thanks to a strong domestic demand and savvy policy management that has helped ensure economic stability," it added.
Domestically, the report stated, inflation will stay contained in the near term due to favorable rains, robust kharif sowing, adequate food grain stocks, and firm oil prices. These, combined with tame global commodity prices, can counter some of the cost-push inflation arising from tariffs.
To spur growth in a tough global setting, the government has introduced new reform plans. One such is the establishment of a Task Force for Next-Generation Reforms, which will simplify regulatory hurdles, streamline compliance expenses, and make it easier for startups and MSMEs to do business. To boot, future GST reforms are likely to bring down the tax burden on commodities of basic needs, directly benefiting consumers and driving consumer demand.
The ministry also explained that the upgrade of the sovereign rating would help reduce borrowing costs, attract increased foreign investment, broaden access to world capital markets, and reduce inflationary pressures, improving business competitiveness.
Job creation is another area of emphasis, with schemes like the PM Viksit Bharat Rozgar Yojana, combined with education and skill reforms, likely to get the country ready for changing global requirements.
Together, the reforms, along with the higher credit rating, will support growth by stimulating investment, enhancing consumption, increasing employment, and reinforcing confidence in India's long-term economic path, it stated.
