The Indian government announced that it will continue its strategy of reducing customs duties in response to the US plan to impose retaliatory tariffs. Finance Minister Nirmala Sitharaman said at an event in Mumbai that the country aims to create an investor-friendly economy and emphasised that they will continue to reduce and simplify customs duties in this direction.
‘We aim to create an attractive environment for global investors. Therefore, we will review our trade policies and create a more balanced structure in taxation,’ Sitharaman said, adding that reforms to encourage foreign trade will continue to support economic growth.
India is Vulnerable to U.S. Tariffs
Experts indicate that India is at risk of potential retaliatory measures from Washington due to its USD41 billion trade surplus with the U.S. and existing tariff policies. According to analysts at Mitsubishi UFJ Financial Group Inc., if the U.S. enforces full reciprocity, tariffs on Indian goods could rise from the current 3% to over 15%.
Specifically, if the U.S. imposes a fixed 20% tariff on Indian exports, India's Gross Domestic Product (GDP) could experience a decline of 50 basis points. State Bank of India’s Chief Economist Soumya Kanti Ghosh predicts that such a tariff hike could lead to a contraction of 3% to 3.5% in India’s exports to the U.S.
Prime Minister Narendra Modi aims to avoid a trade conflict with the U.S. to prevent any loss of momentum in India's post-pandemic economic recovery. In this regard, the Indian government has signaled its willingness to make certain concessions to balance trade relations with Washington. Officials have indicated that this policy will continue in the coming period.
Following last week’s meeting between Modi and Trump in Washington, it was announced that both countries aim to reach a comprehensive trade agreement by the fall of 2025. Additionally, a joint goal has been set to increase bilateral trade volume to USD500 billion by 2030.
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