The Trump administration final Wednesday imposed an extra 25% tariff on Indian exports to the US, in retaliation for New Delhi's continued imports of Russian crude oil. This new measure will come into drive on August 27 and can push the general tariff price to 50%, as it's added on prime of an present 25% levy. CreditSights mentioned this may make India topic to the very best US tariff price presently in impact, a place shared solely with Brazil.
CreditSights described the general blow to the financial system as ‘manageable' on condition that exports to the US make up roughly 2% of India's GDP, and that home personal consumption and capital funding stay the principle progress drivers. It cited BMI, its sister firm, which is projecting GDP progress of 6.0% in FY26 and 5.6% in FY27 below the current 25% tariff price. If the complete 50% price takes impact, BMI expects GDP progress to fall by an additional 0.2 share factors in FY26 and 0.4 share factors in FY27. The analysis agency additionally mentioned there may be nonetheless a chance of negotiations that would convey the tariff price down, noting that different nations have seen such outcomes prior to now.
Nonetheless, a protracted 50% tariff regime may inflict extreme injury on industries closely depending on US demand. CreditSights highlighted textiles, jewelry, attire, seafood, equipment and mechanical home equipment, chemical substances, and auto elements as sectors more likely to face vital headwinds. In every of those areas, the US is the biggest export marketplace for Indian producers, and the upper duties may erode competitiveness and squeeze margins.
For Indian banks, the direct threat from these sectors seems restricted. CreditSights' evaluation of economic knowledge as of June 30, 2025, reveals that the mixed excellent fund-based and non-fund-based publicity of the banks below its protection to those industries is under 10% of complete publicity. Moreover, among the most uncovered product classes — resembling auto elements, seafood, and equipment and mechanical home equipment — are sub-segments of broader classes like automobiles, meals, and engineering, the place the banks' publicity is extra diversified.
However, the impression on banks could also be felt extra by way of what CreditSights referred to as “second order” results. The agency expects credit score prices to rise, even when asset high quality stays broadly manageable. It warned that the larger difficulty might be a slowdown in company mortgage demand, which was already weak within the first quarter of FY26, and a dent in investor sentiment in the direction of future investments in India. Each traits may restrain credit score progress and weigh on banks' earnings outlook.With lower than two weeks earlier than the upper tariffs are set to take impact, the potential for last-minute talks gives some hope to exporters and traders. But when the measures stand, sectors with deep reliance on US patrons might want to navigate a troublesome adjustment, and banks could discover themselves grappling with a slower pipeline of latest lending, even because the broader financial system continues to lean on home consumption and funding to drive progress.
