NEW DELHI: Trump has announced that reciprocal tariffs will take effect from April 2 in many countries. This has raised several questions, such as how they will be implemented, how India will respond while maintaining bilateral ties, and which sectors will be most affected.
The primary concerns revolve around how the tariffs will be applied—whether they will target specific sectors or be imposed broadly. If implemented, which sectors will be impacted the most?
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Sonal Varma, Managing Director and Chief Economist (India and Asia ex-Japan) at Nomura, stated in her research, “US reciprocal tariffs will be levied not just based on tariffs imposed by partner countries, but also on VAT, exchange rate deviations from market value, and non-tariff barriers.”
Recently, India has been working to improve trade relations through initiatives like ‘Mission 500’ for bilateral trade. In the energy sector, India plans to increase imports of American oil and gas to reduce its trade deficit, while the US aims to become India’s primary energy supplier. India will also amend its laws to facilitate the entry of US nuclear technology, with both nations collaborating on civil nuclear energy and small modular reactors.
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Regarding defense, the US has proposed offering India the advanced F-35 fighter jet. Both countries will establish an Autonomous Systems Industry Alliance, focusing on defense cooperation, including joint development, production, and technology transfer.
Beyond these areas, India and the US will collaborate on the India-Middle East-Europe Economic Corridor (IMEC) as a strategic alternative to China’s Belt and Road Initiative (BRI). They will also work together in emerging technologies such as artificial intelligence, semiconductors, and quantum computing, alongside joint efforts in lithium and rare earth mineral processing.
However, experts at Nomura warn that these efforts may not be sufficient to prevent the US from imposing higher reciprocal tariffs on Indian goods.
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The report also highlights insights from the World Trade Organization’s Integrated Trade Intelligence Portal (I-TIP), which tracks non-tariff barriers (NTBs) imposed by Asian economies against the US. According to the data, India and China have implemented the highest number of NTBs, with anti-dumping measures being a primary tool.
The US is India’s largest export destination, accounting for nearly 18% of its total exports and around 2.2% of India’s GDP as of FY24. Key Indian exports to the US include electrical machinery, gems and jewelry, pharmaceuticals, iron and steel, textiles, and vehicles. These industries are major contributors to India’s economy, employing millions of workers.
Nomura’s research suggests that while India’s trade surplus with the US was reduced during Trump’s first presidency, it has grown significantly since then, reaching $38 billion in 2024 from $31.2 billion in 2023. “India has taken steps to reduce tariffs and is considering more reforms in key sectors, but whether this will be enough to satisfy the US remains uncertain,” the report stated.
Some sectors in India, such as luxury cars and two-wheelers, might benefit from tariff reductions, making these products cheaper for consumers. However, local manufacturers may face stiffer competition from global brands.
A significant shift could occur in India’s energy imports. With the US looking to strengthen its role as India’s primary energy supplier, there is a possibility that India might reduce its oil imports from Russia. While this could lower India’s trade surplus with the US, it may lead to a rise in trade with Russia instead. “Overall, India’s total trade balance may not change much, but the composition of imports could shift,” Nomura analysts noted.
While much attention is on tariffs and trade balances, the India-US partnership is also growing in defense and technology. Nomura’s research indicates that India is among the biggest beneficiaries of global supply-chain shifts, with sectors like electronics, automobiles, and semiconductors seeing increased investment.
“India is emerging as a key destination in the ‘China-plus-one’ strategy, attracting global companies looking to diversify their supply chains,” the report emphasized.
Despite immediate concerns surrounding reciprocal tariffs, Nomura maintains that, in the long run, there could be economic and strategic benefits for both nations.
