US President Donald Trump and Indian Prime Minister Narendra Modi hold a joint press conference in the East Room of the White House in Washington, DC, on February 13, 2025.
Andrew Caballero-Reynolds | Afp | Getty Images
India’s stock market showed little sign of panic a day after the U.S. announced a 50% tariff on goods from the country and threatened secondary sanctions over its continued oil trade with Russia.
The Sensex, the benchmark index for India’s blue-chip stocks, was down 0.8% as of 1:50 p.m. Mumbai time (4:20 a.m. ET) on August 7.
From bureaucrats to businesses, there’s a broad consensus in India that the latest escalation from the U.S. is only a pressure tactic to fast-track trade talks. However, Indian Prime Minister Narendra Modi now has something he didn’t have, even a day earlier: the support of the Indian opposition to push back.
Rahul Gandhi, the leader of India’s largest opposition party, the Indian National Congress, described the penalty for Russian oil purchases as “economic blackmail” by Trump.
Consequently, the Indian negotiators’ resolve may only get stronger, especially in talks over areas that directly affect the country’s farmers.
“India will never compromise on the interests of the country’s farmers, fishermen, and livestock breeders. I know it will cost me personally, but I am ready,” Modi said on Thursday morning, hours after the U.S. increased tariffs.
Economic impact
By most estimates, the cost of losing trade with the U.S. is significant for India but not debilitating.
The most pessimistic estimate is from Morgan Stanley. It says that if all goods are subject to a 50% duty, the impact on India’s gross domestic product is likely to be 60 basis points, about $23 billion at current exchange rates.
On the other hand, the cost of allowing U.S. dairy exports into India — one of the most contentious issues— is expected to cost India 1.8 lakh crore rupees ($20 billion) alone, according to SBI Research, a unit of the country’s largest bank. A little over half of that burden will hit farmers directly in the form of falling retail prices, SBI said, unless the government compensates for the loss.
Indian exports to the U.S.
| Sector | Exports to the U.S. in 2024 | Share of India’s exports to the U.S. |
|---|---|---|
| Electronics | $11.1 billion | 14.30% |
| Gems and jewelry | $9.9 billion | 12.80% |
| Pharmaceuticals | $8.1 billion | 10.40% |
| Nuclear reactors, parts, machinery | $6.2 billion | 8% |
| Refined petroleum products | $5.8 billion | 7.50% |
Source: India’s Ministry of Commerce
The additional tariffs could also be catastrophic for India’s gem and jewelry companies, a spokesperson for the industry lobby told CNBC-TV18 on Thursday, while Indian seafood exporters, who sell the bulk of their produce to the U.S., may lose nearly $3 billion a year at the 25% tariff effective today, according to analysts at Morgan Stanley.
India’s labour-intensive textile industry, meanwhile, expects $5 billion worth of business to move away from India in the next few months due to the tariffs.
High U.S. duties will also affect India’s ability to attract foreign direct investment (FDI), according to Arvind Sanger from Geosphere Capital Management, a New York-based broker.
India’s position is bolstered by the fact that over 60% of its GDP comes from domestic consumption, however.
The Indian rupee will be the immediate casualty, according to Mahesh Patil, who oversees more than 3 lakh crore rupees ($35 billion) worth of financial assets at the Mumbai-based Aditya Birla Mutual Fund as its chief investment officer. However, Patil also noted that the rupee settling at lower levels against the U.S. dollar may offset some of the hit on Indian exporters, and the impact may be visible with a lag of a few months.
A snapshot of India’s trade with the U.S.
| Total bilateral trade in 2024 | $212.3 billion |
| Goods trade | $129 billion |
| Services trade | $83.4 billion |
| U.S. deficit in goods trade with India | $45.8 billion |
| U.S. surplus in services trade with India | $102 million |
Source: United States Trade Representative
About 40% of India’s entire trade with the U.S. is in services, which is not even a point of discussion so far as the U.S. exports more services to India than it imports. Trump also hasn’t paid heed to the call for curbs on the H1-B visa, which is a route mostly used by Indian nationals looking to fill talent gaps — particularly in the tech sector — in the U.S.
India’s middle ground
Amid Trump’s threat of secondary sanctions on India, Modi is planning his first visit to China since 2018. And, close on the heels of U.S. envoy Steve Witkoff, India’s National Security Advisor Ajit Doval is visiting Russia in an effort to pursue India’s interests through diplomacy.
Meanwhile, India’s foreign ministry has hit out at what it calls U.S. hypocrisy in ignoring its own trade with Russia that has continued through the war in Ukraine, an allegation that Trump brushed aside but didn’t deny. It’s also important to note that Indian companies own stakes in many Russian oil fields.
Trump’s trade advisor, Peter Navarro, has also alleged that India uses the dollars from trade with America to pay for Russian oil, however most of India’s oil trade with Russia is settled in dirhams, the currency of the United Arab Emirates (UAE), refiners have told CNBC-TV18.
India has been a lot more willing than Brazil and China to find a middle ground with the U.S.
The government has already reduced duties on imports of U.S. motorcycles, bourbon, ethernet switches, synthetic flavoring essences and fish hydrolysate, to name a few. It has also allowed Tesla to set up shop in Mumbai and withdrew the equalization levy on internet giants, widely known as the Google tax.
India has also increased its oil purchases from the U.S. by 120% in the last six months, source in the Indian government told CNBC-TV18, which was one of Trump’s primary demands when Modi visited the White House in February 2025.
However, since then, Trump has moved the goalposts from just reducing the U.S.’ trade deficit with India to the South Asian country’s relationship with Russia.
Watch and wait?
Trump has said India’s purchases of Russian oil are why it’s now facing tariffs of 50%, with this full rate due to be imposed 21 days after Trump’s executive order was signed Wednesday.
Despite this, New Delhi’s tone and rhetoric have been milder than the statements coming from Beijing or Rio De Janeiro, but it’s also sticking to its red lines. India is keen to use the 21 days before to find a win-win situation, a government official told CNBC-TV18.
While the Indian government hasn’t hinted at any escalation on its end, some experts believe that India has some legal options at its disposal.
“It is important that we talk to our trading partners and like-minded countries who have been hit by similar actions by the U.S.,” Anjali Prasad, the former Indian ambassador to the World Trade Organization, said.
“Only when we get together, decide on a strategy, will there be some action effectively possible, because there is strength in numbers.”
The fact that Trump is due to meet Russian President Vladimir Putin in the coming days, meanwhile, shows that the U.S.’ priority is to end Russia’s war on Ukraine.
If there’s a breakthrough in talks between Trump, Putin, and Ukrainian President Volodymyr Zelenskyy, India’s oil purchases from Russia might no longer be a problem.
The incentive for India to watch and wait, instead of rushing with concessions, is right there.
— Parikshit Luthra, Delhi bureau chief at CNBC-TV18, contributed to this report.
Sriram Iyer leads CNBC-TV18’s digital team as executive editor. He has over 18 years of experience across both Indian and global outlets, ranging from The Indian Express to Reuters and Business Insider India.
