India braces for economic ripples as US imposes tariffs

India's challenge is managing immediate disruptions while positioning for long-term gains

- Rhik Kundu & Gireesh Chandra Prasad

Washington's latest tariff salvo could not just exacerbate a trade war, but also disrupt currency markets, capital flows, and corporate strategies worldwide. While India, which saw 27% additional import tariffs being imposed, faces fresh challenges, the shift may also provide it with unexpected opportunities in an evolving global trade landscape, according to industry executives and experts.

The tariffs provide India with greater clarity on sectoral impacts and corporate cash flows. However, Indian businesses must now shift focus from cost competitiveness to innovation, said Sachchidanand Shukla, group chief economist at Larsen & Toubro.

"The INR (Indian Rupee) could remain under pressure with a global risk-off, but the bigger risk to monitor is any aggressive yuan devaluation—that will be the joker in the pack," Shukla said.

With increased reciprocal tariffs across the board, experts said that imports of commodities into the US would suddenly become costlier, leading to an adverse impact on demand within the US economy. That could, in turn, lead to an economic slowdown, if not a recession, and not just in the US.

"Demand for goods produced in various manufacturing countries would also go down," said D.K. Srivastava, chief policy advisor of EY India. "Taken together, the likelihood of an overall global economic slowdown is strong."

The uncertainty is likely to prompt central banks around the world to increase their gold holdings, which could drive a rally on the precious metal that is seen as a safe-haven asset, explained Ranen Banerjee, partner and leader for economic advisory at PwC India.