While the immediate outlook reflects economic headwinds due to the US tariffs, the government remains optimistic that India’s strong domestic fundamentals and policy measures will help soften the blow over time.
CHENNAI — India’s Chief Economic Adviser (CEA), V. Anantha Nageswaran, has warned that the recent imposition of high tariffs by the US could significantly impact India’s economic growth in the current fiscal year. According to Nageswaran, the additional 50 percent tariffs imposed by the US on Indian goods may reduce India’s GDP growth by around 0.5% to 0.6% in the 2025-26 fiscal year.
These tariffs came into effect on August 27 and consist of a 25% secondary tariff, coupled with an additional 25% penalty related to India’s continued import of Russian crude oil. The move by the US, under the Trump administration’s policy, is expected to directly impact about 55 percent of India’s $87 billion exports to the US, hitting sectors such as textiles, carpets, automobile parts, marine products, furniture, and steel the hardest. Small and medium-sized enterprises (MSMEs), which form a significant part of India’s export base, are particularly vulnerable to this setback, TNIE reported.
Despite this challenge, Nageswaran maintained India’s overall GDP growth forecast for FY26 at between 6.3 percent and 6.8 percent. He pointed out that India’s strong performance in the first quarter of the fiscal year—with GDP expanding by 7.8 percent between April and June 2025—reflects robust domestic demand and economic resilience.
However, the CEA cautioned that the full impact of the US tariffs is expected to be felt primarily in the second and third quarters of the fiscal year. He expressed hope that the punitive tariffs would be temporary and suggested that trade negotiations could lead to recalibration from the US side in the near future.
The tariffs are seen as an opportunity for other exporting nations, including Vietnam, Bangladesh, and China, to fill the gap in the US market created by the higher cost of Indian goods. This has raised concerns among Indian exporters about losing market share to competitors in these countries.
To offset the negative effects of the tariffs, the Indian government is exploring policy measures such as a Goods and Services Tax (GST) overhaul. Nageswaran indicated that such reforms could contribute to boosting India’s GDP by an additional 0.2 percent to 0.3 percent by improving cost efficiency and business competitiveness.
