Trump Tariffs Could Be A 0.3-Percentage-Point Hit On India's GDP Growth, Says Pranjul Bhandari

Reciprocal tariffs by US President Donald Trump on India could trim the country’s GDP growth by 0.3 percentage points, with agriculture, automobiles, and pharmaceuticals being the hardest-hit sectors, HSBC’s Pranjul Bhandari said on Friday.

Speaking to NDTV Profit on HSBC's new report on tariff estimates, Bhandari, who is the brokerage's chief India and Indonesia economist, said that the exact impact will depend upon the nature of the tariff negotiations.

"If you look at the sectors where India has the highest import tariffs compared to the US, and which might be an eyesore for the US, I think the ones that really stand out are agriculture, automobiles, pharmaceuticals, and gems and jewellery. Rather than speaking at a sector level until the details come, I am looking at a more broad macroeconomic level,” she explained, adding that the growth impact would be about “0.3 percentage points”.

Noting that this is a “period of heightened uncertainty” for India, Bhandari highlighted that high import tariffs have affected the country’s export potential. She mentioned that the US trade tariffs could be a potential "catalyst" for change in the long run.

“We started with the best of intentions, but then it became a slippery slope and that really generally brought up the cost of production in India,” the HSBC economist said highlighting the downside.

According to Bhandari, the solution is to focus on one or two strategic sectors with tariffs to encourage domestic manufacturing while lowering import tariffs for everything else. 

On the market's reaction to the development, she explained that such periods of uncertainty from tariff negotiations and protectionism hurt global investment and trade flows as long-term growth drivers like FDI often take a backseat, adding that India will not be immune to these impacts.

“So for both these reasons, lower investment, lesser trade flows around the world, we could see global growth actually come off, and every country will get impacted, some directly, some indirectly, and India will as well,” the HSBC top executive explained.

However, Bhandari further reiterated that Trump’s renewed focus on tariffs could prove to be a catalyst as they have negatively impacted the Indian economy in the past.

“I don't want to underestimate the pain if new tariffs are imposed on India. However, what we know about India in the past is that it reforms best in periods of crisis,” she said, citing an example of the economic growth between 2000 to 2010 and 2010 to 2020.

“I found two important periods. One is from 2000 to 2010, and the other is from 2010 to 2020. In the first period, India was growing at a very fast clip, with export growth leading at 13% year-on-year in real terms," she said.

"In the second period, however, GDP growth slowed, and export growth dropped from 13% to just 3% year-on-year. A key difference between these two decades is that in the first, import tariffs were coming down, meaning India wasn’t heavily taxing its imports. In the second, India raised import tariffs. My sense is that raising tariffs over the last decade has cost India both exports and GDP growth.”