Trump tariffs may drag India's FY26 GDP growth by 20-40 bps: Economists

India’s gross domestic product (GDP) growth in 2025-26 (FY26) is likely to take a hit of 20-40 basis points (bps) as the steep 25 per cent tariff imposed by US President Donald Trump on Indian exports takes effect from August 1, economists said.

 

However, the impact is likely to remain limited as India’s economy is domestically oriented and the country has relatively lower goods exports to the US than other emerging market peers, experts said.

 

“At these tariff rates, if the burden of higher tariffs is equally split between Indian producers and consumers, it could directly shave off 0.3 percentage point from India’s GDP growth. The penalty rate, if levied, would shave off further from growth, and there could be an indirect growth drag as well, led by lower capital inflows and investments,” HSBC said in a statement.

 

 

Apart from the 25 per cent tariff, Trump on Wednesday threatened to impose a penalty on India for buying Russian oil and defence equipment.

 

Radhika Rao, senior economist, DBS Bank, said that the US is the largest export partner for India at 18 per cent of total exports, comprising smartphones, pharma, textiles, gems & jewellery, iron & steel, and machinery, among others.

 

“Goods exports were frontloaded in the first half of the year, with a payback likely in the second half until clarity surfaces on the exact landing rate. We had previously estimated around 25-30 bps of impact on growth if rates were uniform across sectors,” she added. 

 

Rajani Sinha, chief economist, CareEdge Ratings, said that factoring in the higher reciprocal tariffs and additional penalty on India’s exports to the US, the potential impact on India’s GDP could be around 0.3-0.4 percentage point.

 

“India’s domestically driven economy and relatively lower goods exports to the US at around 2 per cent of GDP should offer some resilience. Going ahead, India-US trade negotiations are expected to continue and could bring some reprieve,” Sinha added.

 

Echoing similar views, Aditi Raman, associate economist, Moody's Analytics, said that while the US is India's largest trade partner, the Indian economy is relatively more domestically oriented than most of the region and relies far less on trade.

 

“Pharmaceuticals, gems, and textiles are key sectors that are likely to be hit. A point of contention is market access to the key agricultural and dairy sector, which India has historically been reluctant to grant," she added.

 

Goldman Sachs in a statement said that if the new tariffs are enforced, that would constitute a potential incremental drag of around 0.3 percentage point (annualised), based on India’s goods exports exposure of roughly 4 per cent of GDP to US final demand. It also cautioned against indirect impact through the “uncertainty channel” on domestic investment.

 

“Elevated policy uncertainty in the US can cause Indian firms, particularly those exposed to US tariffs, to postpone investment decisions,” it added.

 

Meanwhile, Nomura Asia in a note said that its FY26 GDP growth forecast is maintained at 6.2 per cent, but flagged a downside risk of 0.2 percentage point as exports to the US account for 2.2 per cent of India’s GDP, and include pharma, smartphones, gems & jewellery, industrial machinery, auto components, textiles, and iron & steel, most of which will likely face margin pressure.