Deteriorating trade relations between the U.S. and India cause the Indian currency to plummet due to Trump's tariff threats.
The Trump administration's announcement of additional 25% tariffs on Indian goods, primarily targeting India's continued purchases of Russian oil, is set to take effect on August 27. This move could have significant repercussions for India's economy, currency, and oil imports.
The tariffs threaten up to $87 billion in exports to the U.S., accounting for roughly 25% of India's GDP. Sectors like textiles, gems, auto parts, and footwear, which are significant contributors to India's export economy and employment, are particularly at risk. This action may lead to substantial job losses, particularly in textile hubs like Tiruppur, where hundreds of thousands may be affected[1][3].
Moody's projects that India's real GDP growth could slow by around 0.3 percentage points (from 6.3%) for fiscal year 2025-26 if India continues buying Russian oil despite tariffs. However, India's strong domestic demand and robust services sector may somewhat cushion this blow[3].
The tariffs have led to a weakening of the Indian rupee, which has depreciated to reach Rs87.88 against the dollar, nearly hitting the record low of Rs87.95 set in February. This depreciation has prompted investors to seek safe havens like gold, driving Indian gold prices to record highs. The rupee's fall reflects market uncertainty and inflation fears linked to the tariffs and trade disruptions[4].
In terms of oil imports, the tariffs are a response to India's significant purchases of discounted Russian crude oil, which is its largest oil import source. The U.S. sees these purchases as supporting Russia's military efforts in Ukraine and undermining sanctions. Following the tariff announcement, Indian refiners have reportedly suspended new Russian oil orders to reassess. Meanwhile, crude oil prices in India have paradoxically declined due to anticipated reduced global demand and potential supply changes from these geopolitical shifts[2][4][5].
Prime Minister Narendra Modi has signalled India will not let in American farm and dairy products, stating he would "never compromise" on the interests of farmers, livestock owners, and fishermen[6]. Talks between officials from both countries may be cancelled due to the tariff announcement.
Global institutional investors have withdrawn nearly $10bn from India's stock markets since the start of the year, and a large part of the decline in Foreign Direct Investment (FDI) was due to repatriations, as investments were pulled out of India[7][8].
In Uttarakhand, heavy rains and flash floods have led to a massive landslide, causing a death toll of 190. Rescue operations are ongoing, and as of the latest update, 60 people are missing[9]. The weather department has issued warnings for more rainfall in the region.
The depreciating rupee would add to the hefty bill for India's crude oil imports, which was $132.4bn last year. If India has to stop buying Russian oil and look to other countries, potential additional costs of up to $7bn annually may be incurred[10].
[1] Source: [URL for the reference] [2] Source: [URL for the reference] [3] Source: [URL for the reference] [4] Source: [URL for the reference] [5] Source: [URL for the reference] [6] Source: [URL for the reference] [7] Source: [URL for the reference] [8] Source: [URL for the reference] [9] Source: [URL for the reference] [10] Source: [URL for the reference]
- The Trump administration's tariffs on Indian goods could potentially impact various sectors of India's economy, such as textiles, gems, auto parts, and footwear, likely causing substantial job losses.
- The depreciation of the Indian rupee due to these tariffs has led investors to seek safe havens like gold, causing Indian gold prices to reach record highs.
- The ongoing trade disputes and tariffs could increase the cost for India's crude oil imports, potentially causing an additional $7 billion in costs annually if India has to stop buying Russian oil and look to other countries.
- The tariff announcement has had repercussions on India's financial markets, with global institutional investors withdrawing nearly $10 billion from India's stock markets since the start of the year, and a large part of the decline in Foreign Direct Investment being due to repatriations.
