The 25 per cent tariff on Indian goods that Trump announced is expected to have more significant economic implications for America than for India, SBI Research said in a report on August 1. According to the report, the impact of these tariffs may ultimately be more detrimental to the US economy than to India's.

The tariffs, set to take effect from August 7, come alongside penalties for the purchase of Russian crude oil and military equipment.

In its paper, SBI Research termed the imposition of these tariffs a "bad business decision." The ramifications for the US economy could include a reduced GDP, increased inflation and a weakened dollar, it said. The report suggests that the US is already experiencing renewed inflationary pressures, primarily due to the recent tariffs and a declining dollar. This inflation is expected to remain above the 2 per cent target until at least 2026.

The financial burden of these tariffs is projected to be substantial for US households, costing an average of $2,400 in the short term due to increased prices. Low-income families may see losses of approximately $1,300, while higher earners might face a hit of up to $5,000, although their overall financial stability may be less affected.

Despite the potential challenges posed by these tariffs, India has diversified its export markets. While the US remains India's largest export destination, accounting for 20 per cent of total exports, the top ten countries represent only 53 per cent of India's overall export activity.

Key sectors such as electronics, gems and jewellery and pharmaceuticals make up nearly half of India's exports to the US.

Previously, tariffs on these goods varied significantly, with some products facing tariffs as low as zero per cent. Now, all these sectors will be impacted by the new 25 per cent tariff. For instance, India supplies nearly 47 per cent of the US's pharmaceutical needs.

Should the US move its manufacturing and active pharmaceutical ingredient (API) production elsewhere, it could take three to five years to establish meaningful capacity, the report said. This shift may lead to drug shortages and price increases in the US market.

The pharmaceutical sector is particularly vulnerable, as 40 per cent of India's pharma exports are directed towards the US. If the tariffs remain in place, earnings for Indian pharmaceutical companies could decline by 2 to 8 per cent by FY26, given that many large pharma firms derive 40 to 50 per cent of their revenue from the US market.

Moreover, India's trade surplus with the US has seen significant growth, rising from $11 billion in FY13 to an expected $43 billion by FY25.

In the first quarter of FY25, India's trade surplus reached $12.7 billion, driven by a 22.3 per cent increase in exports to the US compared to a more modest 11.7 per cent rise in imports from the US. This front-loading of exports may provide Indian exporters with some breathing space to mitigate the effects of the impending tariffs.