CEA: U.S. Tariffs May Trim India’s FY26 GDP Growth by 0.5–0.6%

India’s Chief Economic Adviser, V. Anantha Nageswaran, cautioned today that the newly imposed 50% tariffs by U.S. President Trump could reduce India’s GDP growth by up to 0.6% in the current fiscal year. Speaking in a Bloomberg TV interview, he emphasised that the severity of the impact would depend on how long these elevated tariffs remain in place.

Steeper Economic Downsides Possible

Nageswaran expressed hope that the punitive tariffs would prove temporary. “Depending on their duration, this could translate into a GDP impact of somewhere between 0.5% to 0.6%,” he said. He also warned that if these trade restrictions persist into the next fiscal year, the economic downside could be notably steeper.

Despite these pressures, Nageswaran reaffirmed India’s GDP growth forecast of 6.3% to 6.8% for Fiscal Year 2025–26, citing the robust performance of the economy in the first quarter, which logged a 7.8% expansion—its fastest in over a year.

India’s move to adopt 50% tariffs follows a two-tier escalation: an initial 25% duty, followed by another 25% linked to its continued imports of Russian crude oil. This tariff spike threatens roughly 55% of India's $87 billion exports to the U.S., raising concerns over competitiveness against countries like Vietnam, Bangladesh, and China.
Reuters

In response to these developments, Nageswaran highlighted ongoing efforts to cushion the economy through internal reforms. Notably, the recently announced Goods & Services Tax (GST) reforms are expected to provide a counterbalance, with estimated GDP support of 0.2–0.3%. These reforms aim to reduce tax burdens, stimulate consumption, and preserve fiscal stability.

Why This Matters

India’s economy faces multiple challenges from outside pressures and domestic reforms. Though the immediate forecast remains resilient, the risk of prolonged trade friction could strain export volumes and investor sentiment. The wider ramifications extend beyond numbers—geopolitically, the crisis underscores vulnerabilities in India-U.S. relations and the importance of diversifying trade partners.

In this backdrop, careful calibration of trade policy, fiscal tools like the GST overhaul, and strategic engagement with global partners will be critical to sustaining growth momentum.