Why Trump's 50% Tariffs May Not Hurt India's Growth, S&P Rating Explains

US President Donald Trump's punitive tariffs on Indian imports will not impact India's economic growth, and its sovereign ratings outlook will remain positive, according to S&P Global Ratings Director YeeFarn Phua. New Delhi is facing a 50 per cent US tariff--comprising 25 per cent that kicked in on August 7 and another 25 per cent due to come into force on August 28 as a penalty for buying Russian oil. 

Speaking at a webinar on Asia-Pacific sovereign ratings on Wednesday, Phua explained that India is not a trade-oriented economy and the nation's exposure to the US in terms of exports to GDP (gross domestic product) is just about 2 per cent.

Why US Tariffs May Not Impact India's Growth

"I don't think the tariffs imposed on India will have an impact in terms of economic growth, largely because India is not a very trade-oriented economy. And if you look at India's exposure to the US in terms of exports to GDP, it is just about 2 per cent," he said, replying to a query on whether the tariff imposition poses downside risks to the positive outlook on India.

In May last year, S&P had upgraded the outlook on India's sovereign rating of 'BBB-' to positive, citing robust economic growth. S&P's latest projections show India's GDP growth will remain steady at 6.5 per cent in the ongoing fiscal year, matching the previous financial year's performance.

YeeFarn further noted that major sectors which export to the US, including pharmaceuticals and consumer electronics, are exempted from tariffs.

"Over the longer term, we don't think this (higher tariffs) will be a big hit (on India's economy), and therefore, the positive outlook on India remains," he said.

To a query on whether US tariffs would impact investment flows into India, the S&P Director said the 'China plus one' strategy has played out for businesses over the last few years, and companies are setting up businesses in India mainly to cater to domestic demand.

"Many (businesses) are going there not because they are looking to export just to the US. Many of them are going there because of the huge domestic market as well. An emerging middle class is getting larger...So, even for those who are looking to invest more in India and looking to export, it might not necessarily be the US market," YeeFarn said.

India-US Trade

In 2021-25, the US was India's largest trading partner. The US accounts for about 18 per cent of India's total goods exports, 6.22 per cent in imports, and 10.73 per cent in bilateral trade.

With America, India had a trade surplus (the difference between imports and exports) of USD 35.32 billion in goods in 2023-24. It was USD 41 billion in 2024-25.

In 2024-25, bilateral trade between India and the US reached USD 186 billion. India exported goods worth USD 86.5 billion while imports stood at USD 45.3 billion.