US Tariffs on India: It’s a question of trade, not sanctions

The recent imposition of a 50% tariff on Indian exports to the United States has raised concerns across markets, in part because of the public comments by US officials that attempted to link it to India’s purchases of Russian oil. However, we do not believe that this the real driver of the decision: US officials have in fact tacitly supported India’s continued purchases of Russian crude at discounted rates over the last few years, to avoid the likely surge in fuel prices that would result in the event of an actual embargo on Russian oil exports, which satisfy around 5% of global demand.

“India’s purchases of Russian oil are not in breach of sanctions and serve a stabilising role in global energy markets.”
— Janet Yellen, former US Treasury Secretary and former chair of US Federal Reserve

“The US understands India’s energy needs and its role in keeping oil prices in check.”
— Eric Garcetti, former US Ambassador to India

India’s External Affairs Minister S. Jaishankar has also pushed back against criticism:

“That's really curious. If you have a problem buying oil or refined products from India, don't buy it. Nobody forces you to buy it. But Europe buys, America buys, so you don't like it, don't buy it.”

This underscores India’s position that its energy trade is both legal and essential to global price stability. The broader context reveals that Europe continues to import liquefied natural gas (LNG) from Russia, and the US itself purchases uranium and other minerals from Russia, imports of which have increased significantly in 2025 from prior years. These facts highlight the selective nature of sanctions and trade penalties, reinforcing the view that India’s Russian oil imports are not the true driver of the tariff escalation.

The tariffs are better understood as part of the US negotiating strategy, which aims to secure trade concessions from India, particularly with regard to market access on agricultural products - a politically sensitive issue given that almost 2/3 of Indians live in rural areas and ~45% of employment is in agriculture.

“India will never compromise when it comes to protecting the interests of our farmers”
— Indian PM Narendra Modi

India’s relatively high average tariff rates (12% vs. 2.2% in the US) and its outright refusal to reduce tariffs on agricultural products and dairy, have thus made it a target for reciprocal trade measures. The penalties, announced in two tranches of 25%, are expected to raise India’s effective tariff exposure to over 32%.

Limited effect on GDP

While there will be some macroeconomic consequences of the new US tariff, they are far from being as impactful as the dramatic headlines might suggest. According to CLSA, the 50% tariff could reduce India’s annual GDP growth by 60 basis points, or 36bps in FY26. UBS estimates a slightly lower drag of 30–50bps. This would still leave India with a growth rate in the tune of ~6%, well above that of most other large economies. India’s exports to the US account for just 2.2% of GDP, and many critical sectors—such as pharmaceuticals, electronics, and refined fuels (which US continues to buy from India)—are currently exempt from the tariffs. Exports that are affected by the tariff are unlikely to disappear entirely – some of the goods may be redirected to other markets that have not imposed tariffs, and in some cases, they will be absorbed by domestic consumers.

Government Response: Stimulating Domestic Demand

India’s policy response has been swift and strategic. The government is accelerating GST rationalisation, a long-awaited reform that will reduce tax burdens and stimulate consumption. The number of different GST rates will be reduced, leading to a simplified and more streamlined system that will deliver a 10pp reduction in the GST rate for several key products such as cement, insurance and certain durable goods. This could translate into a meaningful stimulus for consumers.

“India will use this moment to deepen liberalisation and boost domestic demand.”
— Sanjeev Sanyal, Economic Advisor to the Prime Minister

The Reserve Bank of India is also expected to ease monetary policy, with forecasts pointing to a 25bp rate cut in the near term.  This is in addition to the 100bp reduction already implemented since December 2024. 

Sectoral Impact and Portfolio Exposure

The tariffs disproportionately affect labour-intensive sectors such as textiles, jewellery, and industrial machinery. However, the Jupiter India Fund and the Jupiter India Select fund remain largely insulated as we have hardly any exposure to these areas. For example, textile manufacturers with significant US exports constituted less than 0.7% of the fund at the end of July 2025; we believe that even these most-affected companies will be able to manage even if the tariff remains elevated for some time as they have between 40-65% of their revenues from outside the USA, and may be able to redirect some US volumes to other markets. Tata Motors is one of our portfolio companies, and it exports autos to the US from its UK JLR subsidiary under the UK-USA agreement, so is not subject to the 50% duty on Indian exports. The management of electric cable maker RR Kabel stated in their most recent earnings call that only ~2.5% of company revenue comes from exports to the US and is seeing healthy growth in other markets.

Consequently, we believe that that around 98 to 99% of the companies held in the fund by weight will avoid any material direct effect from the new tariffs, either because they do not export goods to the US, or because their US exports are very small as a percentage of total sales, or, in the case of pharma companies, due to sectoral exemptions from tariffs.  

If pharma tariffs are eventually introduced, the US’s reliance on Indian manufacturers will make it very difficult for the US to find substitute products at comparable scale and cost; over 60% of generic tablets consumed in the US come from India. In our view, this means that the extra costs imposed by any new pharma tariff are more likely to be borne by US importers, and ultimately the US patients via price increases, than by Indian drugmakers. However, we cannot exclude the possibility that Indian drugmakers exporting to the US may have to share some part of the cost burden, potentially creating a headwind for their earnings. Indian pharma companies account for approximately 8% of the fund, which limits our exposure to this sector-specific risk.

The vast majority of the portfolio is focused on the Indian domestic economy, with financials, consumer companies and healthcare among the largest sectors. It is possible that there could be some second-order effects on some of these; for example, businesses that were oriented towards US exports might have reduced capacity to service their debts to Indian banks if they are unable to find alternative customers, and the employees of such businesses may also find it harder to remain current on personal loans or mortgages. We believe that the timely actions of the Indian government and central bank can help mitigate these risks by stimulating domestic demand and reducing the cost of borrowing.

Conclusion

The imposition of a 50% tariff is clearly a less favourable outcome than the rapid conclusion of a trade deal that had been widely expected based on public comments from administration officials, however, we believe this should be considered as part of a US trade negotiating strategy that has made temporary use of such tactics to secure concessions, rather than as a sanction for buying Russian oil. We see the effects as being manageable; India is responding with reforms that ought to strengthen its domestic economy and long-term growth prospects.  While dramatic headlines about tariffs are known to affect short term market sentiment, they often overstate the likely effect on economic fundamentals; in our view, such situations can create opportunities for investors to buy in to growing businesses at attractive prices.

“This is a complicated relationship. President Trump and Prime Minister Modi have a very good rapport at the top level, but it’s not just about Russian oil,”

“There are many layers to this situation. Still, India is the world’s largest democracy, and the U.S. is the world’s largest economy. At the end of the day, I believe the two countries will come together,” – Scott Bessent, US Treasury Secretary, 27^th Aug 2025

Strategy specific risks

• Currency (FX) Risk - The Strategy can be exposed to different currencies and movements in foreign exchange rates can cause the value of investments to fall as well as rise.
• Pricing Risk - Price movements in financial assets mean the value of assets can fall as well as rise, with this risk typically amplified in more volatile market conditions.
• Emerging Markets Risk - Emerging markets are potentially associated with higher levels of political risk and lower levels of legal protection relative to developed markets. These attributes may negatively impact asset prices.
• Market Concentration Risk (Geographical Region/Country) - Investing in a particular country or geographic region can cause the value of this investment to rise or fall more relative to investments whose focus is spread more globally in nature.
• Derivative risk - the Strategy may use derivatives to reduce costs and/or the overall risk of the Strategy (this is also known as Efficient Portfolio Management or "EPM"). Derivatives involve a level of risk, however, for EPM they should not increase the overall riskiness of the Strategy.
• Liquidity Risk - Some investments may be hard to value or sell at a desired time and price. In extreme circumstances this may affect the Strategy's ability to meet redemption requests upon demand.
• Liquidity Risk (general) - During difficult market conditions there may not be enough investors to buy and sell certain investments. This may have an impact on the value of the Strategy.
• Counterparty Default Risk - The risk of losses due to the default of a counterparty on a derivatives contract or a custodian that is safeguarding the Strategy's assets.

For a more detailed explanation of risk factors, please refer to the "Risk Factors" section of the KIDs (Key information documents).

Important information

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