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    Prolonged US Tariffs May Shave Off Up To 0.8% From India’s GDP: Morgan Stanley

    12 hours ago

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    If the recently imposed 50 per cent US tariffs on Indian goods remain in place for an extended period, India's economic growth could slow down by 0.4 per cent to 0.8 per cent, global financial services firm Morgan Stanley said in its latest report. The forecast underscores mounting concerns over the broader economic fallout from escalating trade tensions between the two countries.

    According to the report, if the elevated tariff rates persist over a 12-month horizon without any mitigating policy measures, the Indian economy may face notable downside risks. “To assess the impact of tariffs on India's GDP, we use inferences from the input-output table modelled by our global team,” the report stated.

    The direct drag on GDP is projected to be around 60 basis points if all goods exports are affected by the full 50 per cent tariff, while the indirect effects—arising from linkages across sectors and supply chains—could mirror that impact, totaling up to 1.2 per cent in the worst-case scenario. However, when adjusting for exemptions, the net effect could be around 80 basis points.

    Multi-Layered Economic Impact

    Morgan Stanley’s report outlines three levels of economic disruption. The primary impact stems from a reduction in value-added GDP due to lower demand for tariffed goods or across-the-board declines if Indian exports are broadly affected. The secondary impact arises when weaker demand disrupts production of intermediate goods tied to the affected exports, leading to potential job losses or wage reductions. A tertiary impact may unfold if business sentiment weakens, affecting profitability and discouraging future investment.

    Policy Intervention May Offset Risks

    Despite the grim projections, Morgan Stanley acknowledges that domestic policy actions or a diversification of export markets could cushion the blow. “The sensitivity analysis is based on a linear impact from the external demand shock and does not consider mitigating factors such as domestic policy response or export market diversification,” it said.

    The report also anticipates that Indian policymakers may introduce supportive measures to stabilise domestic economic conditions if downside risks intensify.

    Also Read: RBI’s Rate Pause In August Seen As Tactical Move Amid Strong Growth Outlook: SBI

    India-US Trade Talks Key To Outlook

    As trade uncertainty looms, Morgan Stanley flagged the upcoming sixth round of trade negotiations between India and the United States, scheduled for August 25, as a key event to watch. “We will closely monitor geopolitical developments and high-frequency growth data,” it said.

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