FinMin monthly review flags US tariffs’ secondary risks to economy
The Finance Ministry has cautioned that the full effects of US tariff action will play out over time, warning of secondary and tertiary challenges even as the near-term impact looks contained.
In its latest Monthly Economic Review, the ministry stressed that ongoing India–US trade negotiations will be crucial, as prolonged uncertainty could affect Indian industry given the importance of the American market for exports.
The report added that the new levies are expected to weigh on global trade in the latter half of 2025 and throughout 2026. It observed that uncertainty in the trading environment, compounded by geopolitical tensions, is already affecting business confidence, investment sentiment and supply chains.
Global trade data underscores this shift. The World Trade Organization recently cut its 2025 merchandise trade growth forecast to 0.9% from 2.7%, citing the drag from tariffs and protectionist policies. The Trade Policy Uncertainty Index rose 17% in July, reflecting the heightened anxiety among firms and investors.
Also Read: No need for panic over US tariffs, India’s exports diversified: govt sources
Despite this, India’s external sector showed resilience in July. Goods and services exports rose 4.5% year-on-year to $68.3 billion, with merchandise exports up 7.3%, led by a strong 12.7% rise in non-petroleum, non-gems and jewellery shipments.
Services exports edged higher by 1.4%. Imports grew 6.1% to $80 billion, driven by firm consumption demand, widening the trade deficit to $11.7 billion from $10.1 billion a year ago.
The ministry pointed to calibrated trade policy as a buffer against tariff risks. The recently concluded Comprehensive Economic and Trade Agreement (CETA) with the UK, which took effect in July, is expected to double bilateral trade by 2030 while protecting sensitive sectors.
Agreements with the European Free Trade Association (EFTA) and negotiations with the EU and US were highlighted as part of efforts to diversify markets and strengthen supply chains.
Also Read: Despite US tariffs, India eyes stronger export push with EFTA, UK and EU deals: sources
On the domestic front, economic activity remained strong in July. High-frequency indicators such as e-way bill generation hit record highs, while manufacturing PMI rose to a 16-month peak and services PMI signalled continued expansion.
Consumer spending was buoyed by FMCG sales, UPI transactions and steady auto demand, while a favourable monsoon lifted rural sentiment. Inflation dropped sharply to 1.6% in July, well below the RBI’s lower tolerance band, thanks to easing food prices.
The ministry noted that this benign inflation backdrop, coupled with S&P’s sovereign rating upgrade to BBB, a strong capex push, and forthcoming reforms such as GST changes and state-level deregulation, provide India with fiscal and monetary space to sustain growth
While acknowledging that tariff-related uncertainties and global headwinds cannot be ignored, the review concluded on a balanced note: India enters this phase from a position of relative strength, underpinned by resilient domestic demand, diversified trade strategies and structural reforms.