While India is exposed to direct tariff risks, the global brokerage believes that on balance, the country is less exposed to global goods trade slowdown considering that it has the lowest goods exports to GDP ratio in Asia.

The report highlighted that significant uncertainty still remains on the quantum of the tariff increase that India would be subjected to given the US administration has yet to fully clarify how reciprocal tariffs would be imposed.

According to the report, while India can eventually reach a trade deal with the US, it would be relatively more challenging given the multiple bilateral trade issues.

“As it is, officials have guided for a Fall (September-November) 2025 timeline for a possible US-India free trade agreement. This would imply that India would not be able to avoid reciprocal tariffs scheduled for April 2nd and that tariffs could likely go up in the meantime until at least the trade deal is reached,” it further stated.

The report underscored that WTO’s most-favoured-nation principle also prevents India from adjusting its tariffs on US imports first without extending this to other WTO members, unless this happens under a free-trade agreement.

Under the WTO agreements, countries cannot normally discriminate between their trading partners. Grant someone a special favour (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members.

Some exceptions are allowed. For example, countries can set up a free trade agreement that applies only to goods traded within the group — discriminating against goods from outside. Or they can give developing countries special access to their markets. Or a country can raise barriers against products that are considered to be traded unfairly from specific countries. And in services, countries are allowed, in limited circumstances, to discriminate.

But the agreements only permit these exceptions under strict conditions. In general, MFN means that every time a country lowers a trade barrier or opens up a market, it has to do so for the same goods or services from all its trading partners — whether rich or poor, weak or strong, the report observed.

It further states that from a tariff risk perspective, India is among the more exposed economies to further tariff escalation (i.e. reciprocal tariffs) within Asia given India imposes very high tariff rates on select imports, existence of high non-tariff barriers and the size of its goods trade surplus with the US.

Additionally, India is also moderately exposed to potential tariffs on pharmaceutical product exports. President Trump has indicated he will likely impose tariffs on this product category which account for 2.8 per cent of overall exports and 0.3 per cent of GDP.