Key Points

Experts said that the decision will have a varied impact on different sectors

Trump's decision came two days ahead of the impending US tariff deadline of August 1.

He announced the imposition of 25 per cent tariffs on Indian goods, even as there were hopes of an interim India-US trade that would have otherwise helped avoid elevated tariffs.

Over the past few months, India and the US have been negotiating for an interim trade deal, but there were some reservations from the Indian side on the US demand for opening up the agricultural and dairy sectors for the US. Agriculture and dairy are critical for India as these two sectors provide livelihood opportunities to a large section of its people.

India reportedly faces US demands, including allowing remanufactured goods, opening up agriculture and dairy, accepting genetically modified (GM) feed, and adopting US rules on digital trade and product standards.

"Remember, while India is our friend, we have, over the years, done relatively little business with them because their Tariffs are far too high, among the highest in the World, and they have the most strenuous and obnoxious non-monetary Trade Barriers of any Country," Trump asserted, as he announced 25 per cent tariffs on India.

Also, President Trump was unhappy about the Indian imports of energy and defence equipment from Russia. Trump indicated that India will have to pay a "penalty" on top of the imposed tariffs starting August 1, without elaborating.

"...they have always bought a vast majority of their military equipment from Russia, and are Russia's largest buyer of ENERGY, along with China, at a time when everyone wants Russia to STOP THE KILLING IN UKRAINE - ALL THINGS NOT GOOD! INDIA WILL THEREFORE BE PAYING A TARIFF OF 25 per cent, PLUS A PENALTY FOR THE ABOVE, STARTING ON AUGUST 1st. THANK YOU FOR YOUR ATTENTION TO THIS MATTER. MAGA!" Trump added.

After the war erupted between Russia and Ukraine in 2022, the US and Western nations imposed restrictions on Moscow. However, India has continued to purchase Russian oil. Russian oil was never subject to global sanctions; it was only placed under a price cap.

Dr Ajay Sahai, DG and CEO of Federation of Indian Export Organisations (FIEO), said, "The 25 per cent tariff imposed on India is a little disappointing for us, and we are constantly engaged with the US on the BTA. The 'penalty' President Trump has talked about is also not clear... In a few months, there will be BTA between India and the US and these tariffs will come down significantly..."

US President Donald Trump had imposed reciprocal tariffs on dozens of countries with which the US has a trade deficit. Later, President Trump decided to pause the tariffs for 90 days after many countries initiated talks with the US administration for a trade deal. In these 90 days, starting April 9, and ending on July 9, President Trump imposed a 10 per cent baseline tariff on all countries.

The Trump administration had deferred imposing additional tariffs on several countries till August 1, and had indicated a further extension was unlikely. Since assuming office for his second term, President Trump has reiterated his stance on tariff reciprocity, emphasising that the United States will match tariffs imposed by other countries, including India, to ensure fair trade.

Ajay Srivastava, founder of the Global Trade Research Initiative, told ANI that 25 per cent tariffs would have a varied impact on different sectors. He essentially meant that India will have a competitive advantage vis-a-vis countries that have been slapped with even higher tariffs.

Claiming that the recent US-Indonesia trade deal was a "clear example of how aggressive US pressure can force" countries to ink one-sided agreements, think tank GTRI suggested India to be careful and not "fall into the same trap".

On Tuesday, ahead of the self-imposed August 1 deadline date for tariffs to come into effect, President Trump had stated that the India-US trade deal was "working out very well" but hinted at a 20 per cent to 25 per cent tariff, which he eventually announced today.

Representatives of India's Department of Commerce and the Office of the U.S. Trade Representative have held several rounds of talks to conclude a trade agreement.

Now with India set to face 25 per cent tariffs, it is likely that the Indian financial markets will react negatively to it at the Thursday morning opening bell.

"Markets will react negatively to the imposition of tariff on India. Despite the unpredictable policy making of US, market was expecting a tariff deal to work out as longer term US India strategic interests are aligned," Nilesh Shah, MD, Kotak Mahindra AMC, said.

India and United States have agreed to expand bilateral trade to reach USD 500 Billion by 2030, including through the conclusion of a Bilateral Trade Agreement by the fall of 2025.

Aditi Nayar, Chief Economist, ICRA Ltd, said, "When the US had initially imposed tariffs, we had lowered our forecast of India's GDP expansion to 6.2 per cent for FY2026, presuming a tepid rise in exports and a delay in private capex. The tariff (and penalty) now proposed by the US is higher than what we had anticipated, and is therefore likely to pose a headwind to India's GDP growth. The extent of the downside will depend on the size of the penalties imposed."

Industry body FICCI said it is disappointed by the 25 per cent tariff on exports from India, besides the secondary sanctions.

Harsha Vardhan Agarwal, President, FICCI, said, "FICCI is disappointed by the decision taken by the U.S. to levy a 25 per cent tariff on exports from India and impose secondary sanctions. While this move is unfortunate and will have a clear bearing on our exports, we hope that this imposition of higher tariffs will be a short-term phenomenon and that a permanent trade deal between the two sides will be finalised soon."

- ANI