India Can Offset US Tariff Shock Through Growing Domestic Demand: GTRI

New Delhi, Aug 27 (KNN) India can cushion the impact of the 50 percent additional tariffs imposed by the United States, which came into effect on Tuesday, by leveraging its growing domestic market and diversifying export destinations, according to the Global Trade Research Initiative (GTRI).

Ajay Srivastava, Founder, GTRI, said the Indian economy’s strong internal demand provides a significant buffer. 

“Our exports account for just 20 percent of the economy, while 80 percent is absorbed by the domestic market, which continues to grow at 6–7 percent annually. Domestic consumption can happily absorb some of the shocks,” he told ANI.

The second avenue, he said, is to divert exports to alternative markets. India is accelerating negotiations on free trade agreements (FTAs) with the European Union and has recently signed an agreement with the UK. 

Talks are also progressing with Peru and other countries. “These efforts will help redirect trade flows and mitigate the adverse impact of US tariffs,” Srivastava said, expressing hope that the damage could be contained within a few months.

Labour-intensive sectors—including textiles, garments, jewellery, diamonds, and shrimp—are expected to bear the brunt of the tariff hike, given their dependence on the US market and rising competition from countries such as China, Bangladesh, and Vietnam, which face relatively lower tariff barriers. 

“Most Indian products will be phased out of the US market until tariffs are brought down,” Srivastava warned.

He noted, however, that the role of small and medium-sized exporters in the US market is relatively limited due to stringent certification requirements, which many smaller firms cannot afford. Most SMEs, he
said, cater to lower-end markets instead.

On prospects of easing the trade rift, Srivastava remained optimistic. “Negotiations have not been terminated, only paused. Both India and the US remain open to dialogue, and we hope talks may resume soon,” he said.

For the long term, GTRI suggested that India focus on improving product quality and reducing manufacturing costs to enhance export competitiveness in global markets.

(KNN Bureau)