Tariff resilience: India’s domestic demand shields economy from tariff shocks, says BoB chief economist

India’s limited dependence on exports and strong domestic demand will help it weather the impact of recently imposed US tariffs, said Madan Sabnavis, Chief Economist at Bank of Baroda. Speaking at a webinar, Sabnavis argued that India’s non-export-oriented growth model provides resilience amid rising global protectionism.“Since we are not an export-oriented economy, it is becoming advantageous for us because we are more dependent on domestic consumption,” he said, quoted ANI.The comments come days after US President Donald Trump announced a 25% tariff on Indian goods along with an unspecified penalty, despite earlier expectations of a bilateral trade deal. The move is part of Trump’s broader tariff push under his April 2, 2025 executive order, which imposes reciprocal tariffs ranging from 10% to 50% across trade partners.Bank of Baroda has projected GDP growth of 6.4% to 6.6% for FY26, a forecast that already factors in potential export disruptions. According to BoB estimates, a 10% drop in exports would shave about 0.2 percentage points off GDP.India’s exports account for 21% of GDP, with services contributing nearly half of that — a composition that makes the country less vulnerable to goods tariffs. “India’s significant reliance on service exports cushions the economy in this volatile tariff environment,” Sabnavis added.BoB expects India’s current account deficit to remain below 1% of GDP despite the tariff shock. While about 10% of the Wholesale Price Index (WPI) basket could see imported inflation, the Consumer Price Index (CPI) is not expected to rise in the near term.Trade data presented during the webinar showed that India’s export exposure to the US is relatively high at 19.8%, while imports from the US account for just 6.3%. Sectors such as electronics, marine products, readymade garments, gems and jewellery, chemicals and poultry are among the most vulnerable.BoB analysts noted that clarity is awaited on potential exemptions, which could mitigate some of the impact. “Some industries may face higher input costs, which could impact profit margins,” the bank said in its presentation.