How a successful US trade deal can add up to 0.3% to India’s GDP through chemicals, apparel exports

India’s ongoing negotiations with the United States for a bilateral trade agreement (BTA) hold the potential to boost its GDP by up to 0.3% if favourable tariff concessions are secured in chemicals and apparel exports, according to an analysis by SBI Research.

The negotiations, slated to continue until Thursday, aim to iron out differences on sectors like agriculture, automobiles, dairy, chemicals and textiles.

SBI Research said in its report that India could add up to 0.2% to its GDP by increasing its share in the US chemicals market if tariffs are reduced to levels below those faced by Singapore, which currently faces a tariff rate of 25%.

India has a revealed comparative advantage (RCA) in chemicals, but its exports to the US remain much lower than China and Singapore, the report noted.

“China now faces higher tariffs and it presents opportunity for India to increase its share of Chemicals including pharma exports to the US… If India captures even a 2% share from these countries, it can add 0.2% to its GDP,” SBI Research said.

“If India is successful to get the tariffs reduced to below 25% (which is for Singapore currently) then India can capture some of its share as well. If India can capture 2% share from these countries in Chemicals exports, then it can add 0.2% to its GDP,” it added.

According to the report, India could gain another 0.1% of GDP by increasing its share in the US apparel market. Currently, India accounts for 6% of US apparel imports. If it captures an additional 5% market share, mainly from countries like Bangladesh, Cambodia and Indonesia, it can contribute meaningfully to GDP growth, the report added.

The US has recently imposed higher tariffs on several Asian countries, creating an opportunity for Indian exporters to enhance their market presence.

The two countries are aiming to conclude the first tranche of the BTA by September-October this year, with an interim agreement possibly before August 1 to avert additional tariffs.

However, differences remain on duty concessions for agriculture and dairy products, sectors that India considers sensitive due to their livelihood implications for millions of small farmers.

Commerce ministry officials have indicated that India is working towards a mutually beneficial deal while safeguarding its strategic interests.

The SBI report emphasised that even if the India-US deal does not materialise as desired and 10% additional tariffs are imposed on India, the country has avenues to diversify its exports, especially as its services exports continue to touch record highs.