The proposed trade deal between India and America is expected to provide major relief to Indian exporters. According to a report by Bank of America (BofA) Global Research, if the reciprocal tariff rate remains at 18 percent, the effective tariff on Indian exports may come down to 12-13 percent.
What is the share of electronics in Indian exports?
It has been said in the report that the share of electronics in Indian exports to America is 40-45 percent, on which zero tariff is currently applicable. However, when the duty imposed under the US Section 232 provision is added, the effective tariff rate may be slightly above 12 percent.
No clarity has been given on the tariff imposed under Section 232 in the first phase deal. In such a situation, around 25 percent tariff on Indian automobiles, auto components, iron, steel and aluminum may continue.
Labor-intensive sectors expected to get special benefits
According to the report, this trade deal is expected to provide special benefits to labour-intensive sectors. Sectors like textile, gems and jewelery may register growth in exports.
What is America’s share in India’s total imports?
BofA has also said that India has set a target to buy goods worth $ 500 billion from America in the next five years, which is equivalent to imports of about $ 100 billion annually. Currently, India’s total import bill is about $750 billion, of which American products account for about 6 percent. According to the report, achieving this target will not be difficult.
Likely to have limited impact on India’s current account
Increased imports from the US are expected to have limited impact on India’s current account, as India can import energy from the US instead of other countries like Russia. Also, a possible improvement in services exports may support the current account. The report estimates the current account to remain in surplus by December 2025.
