India, Aug. 8 -- US President Donald Trump announced a secondary tariff of 25% on India, which is scheduled to come into effect from August 28. This was not entirely unexpected, especially as President Donald Trump had recently threatened "substantial" tariffs on India. Stacking this on top of the 25% "reciprocal" tariffs announced on July 30 takes the total tariff to 50%. Based on comments made by the president in his latest executive order, these secondary tariffs have little to do with the trade deficit that India runs with the US, and more with the "threat to the United States by the government of the Russian Federation". We would assume that if Russia engages, or agrees to engage, in peace talks with Ukraine, these secondary tariffs may well be reconsidered. After all, India is not the only country that imports oil from Russia, and other such importing nations have yet to face similar tariffs. For clarity, as of now the reciprocal tariff of 25% is in effect and the secondary tariff will come in effect from August 28. If and when both reciprocal and sectoral tariffs are implemented, we estimate that the total US tariff rate on India in trade-weighted terms would be 35.6%, much higher than 20.6%, including the reciprocal and sectoral tariffs. This secondary tariff, if implemented, would certainly dent India's growth outlook, but we believe that this announcement could be another negotiation tactic, and final US tariffs on India could end up lower than the announced 50% rate. There are hopes that the US delegation's scheduled visit to India on August 25 for a sixth round of talks on the bilateral trade agreement concludes in some form of deal, allaying the secondary tariff threat. Even before the secondary tariffs became a reality, the reciprocal tariffs of 25% by itself were relatively higher when compared with other emerging market Asian peers and other large trading partners, putting the Indian economy at a relatively disadvantageous position. From "we are very close to a trade deal with India" to "be prepared for substantially higher tariffs", the US's outlook towards India has undergone a sea change over the past month. India has called these additional duties unfair, unjustified and unreasonable. Clearly, given India's purchase of Russian oil is at the heart of this secondary tariff threat, it becomes critical to understand whether India is willing to pay the price for buying discounted Russian oil. The Indian government has stated that energy imports are meant to ensure "predictable and affordable" energy costs domestically, characterising oil imports from Russia as "safeguarding national interests". India's rationale for purchasing Russian oil stems from the cost advantage that allowed relatively cheaper imports from 2022-2024. Russia's share of India's total oil imports went from ~2.7% in FY21-22 to 26% in FY24-25 (in US dollar terms), surpassing erstwhile top suppliers, Iraq and Saudi Arabia. We estimate imports of discounted crude oil from Russia allowed savings of ~$7-10 billion on a gross oil import bill of $186bn in 2024. As of now, the discount on oil imports from Russia has narrowed to around $3-8/bbl lower than Middle Eastern grade. Should India decide to diversify its oil supply and pivot back to traditional West Asian suppliers and new exporters such as Brazil to make up for lost Russian supply, the price increases could be in the region of ~$4-5/bbl. With global oil prices in 2025 so far settling around $9/bbl lower than 2024, such a diversification of oil supply sources is unlikely to hurt India's oil import bill. The latest data suggest that India has already diversified its source of crude oil imports in FY25-26 so far (April-May), with the share of mineral fuel imports from US rising to 9.8% of India's total, compared with 6.6% in FY24-25 (surging by 69% y/y). That Russia's share of India's oil imports was marginal pre-2022 suggests lowering (but not entirely replacing) imports from Russia is possible, provided the alternative supply is available at a reasonable price. The deadlock in the trade negotiations between US and India is driven by three factors. One, India's continued purchase of Russian oil and military equipment; two, the high tariff and non-tariff barriers imposed by India on US imports; and three, India's reported unwillingness to provide market access to US dairy and agri products into India. India's high import tariff structure is a long-maintained position of protecting the domestic agricultural sector and that is likely to be a red line due to the cooperative, small-scale nature of farming and dairy in India, as well as ethical and cultural concerns. This has been a sticking point between the two sides throughout; we think India will continue to keep these items off the table. What can India offer instead? It is notable that India had already committed to increasing bilateral trade and increasing purchases of US defence products and energy. In particular, India agreed to integrate US-origin defence items in its inventory and to "establish the United States as a leading supplier of crude oil and petroleum products and liquefied natural gas to India". Quantifying these commitments can be one channel through which India makes progress on the bilateral trade agreement talks with the US delegation in end-August. We think the Indian administration, as part of its dialogue with the US counterparts, would continue to highlight the reductions in import tariffs effected in Budget 2024-25 and 2025-26, especially those for lowering duties on US-made motorcycles and whiskies. Specifically, our estimates indicate that trade-weighted US import tariffs on India, at 20.6% (and potentially 35.6% if the secondary duty comes into effect), stand more than double the tariffs imposed by India (9.4%) and around 10 times the US tariffs at the start of 2025 (2.7%). Despite the announcement of these secondary tariffs, we expect the Indian government will still plough on with the next round of trade discussions. A scenario in which India retaliates cannot be discounted, but on balance, we would not expect India to do so....