CNBC’s Sri Jegarajah and CNBC TV-18’s Parikshit Luthra analyze the potential impact of a 25% tariff on Indian exports and a penalty related to purchases of Russian oil and defense products. The Indian government has reiterated its commitment to protecting national interests in ongoing trade discussions.

Delhi

Donald Trump has signed an order to impose tariffs imports into the U.S. from countries including China, Mexico and Canada.

Global Tariffs

The United States has intensified its trade stance towards India by introducing new tariffs and considering additional penalties, particularly in response to India's ongoing purchases of Russian oil and defense equipment. Negotiations between the two countries have stalled, with India stating it has reached its limit on concessions ahead of a set deadline. 

Indian exporters, especially in garments, leather, engineering, and chemicals, are concerned about the impact of increased tariffs and the possibility of further penalties. While exemptions remain for certain sectors like semiconductors and pharmaceuticals, the situation is complicated by India's significant dependence on Russian oil and defense supplies. Recent US sanctions on Indian entities dealing with Iranian crude further add to the pressure, as the US urges India to strengthen trade ties with American partners.

Trump turns up the heat on India: Tariffs & Russia penalty explained

Actually, first of all, give us India's perspective on this. Is this going to make further negotiations tougher? Because this, at first glance, this US position looks as though it's a negotiating tactic to extract concessions from New Delhi. What is New Delhi's next step? How do they respond? You know, sources have been telling us that over the last one month, both sides were trying to have a breakthrough. On 18th of July, the talks ended, that is the fifth round of talks. And India finally said that there's nothing more that we can put on the table, at least as of now, before the 1st of August deadline. We were told that Donald Trump wants to speak to Prime Minister Modi directly. We've seen this with other deals. He's spoken to leaders of Vietnam and Indonesia directly, and he has announced deals. This was not happening. Let's see whether Prime Minister Modi will now speak to Donald Trump to find that political breakthrough. India has drawn the red lines on agriculture and dairy. In fact, the latest statement coming from the Indian government is that we're studying the implications, that we will take all steps to secure our national interests, especially for farmers, MSMEs, our workers, just the way we've done in the UK FTA as well. We remain committed to a fair, balanced and mutually beneficial trade agreement. So this has been the response, but it's been a shock for Indian exporters, especially in the garment sector, in the leather sector, engineering goods, chemical goods. They say margins will be under pressure. They were ready for a 25% tariff saying, yes, it will create some pressures, but we will be able to tide it over. But now you have the question of an additional penalty, which makes things very dangerous. In fact, White House sources replied to a CNBC query last evening and said that additional penalty has not been decided, and the exemptions on items such as semiconductors, pharmaceuticals, steel and aluminium, autos, that will continue as it is. The hits just keep coming, it seems. And now, Parikshit, Washington wants to impose punitive tariffs on buyers of Russian oil and Russian defence equipment, and that, of course, includes India. How does that, in your opinion, change the narrative? You know, that makes things very difficult for India. Over the last few days, even the Indian ambassador to the UK said that we can't switch off our economy, when he was asked about why India continues to buy Russian oil. So, we've always maintained that this is in our national interest. Now, just to give you the latest statistics, 36% of our crude oil imports in the month of July came from Russia. So, that shows your dependence on cheap Russian oil for the moment. Number two, if you look at our defence inventory, 70% of our inventory, current inventory, is of Russian origin. We've used S-400 air defence systems in the last conflict with Pakistan, just a few weeks back. There are at least two more units of S-400 systems which have to be delivered by 2026 next year. We're weighing US F-35s and Su-57s of Russia, the fifth generation stealth fighter jets, for our fighter jet programme. So, a very complicated situation for India. And this morning, the US Treasury Department has slapped sanctions on six Indian entities for dealing with Iranian crude companies. So, India is now in a complicated position. Donald Trump and the US government are putting a lot of pressure on India to buy more and have a deal with the US.

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Trump turns up the heat on India: Tariffs & Russia penalty explained

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