U.S. President Donald Trump’s tariffs will pare India’s Gross Domestic Product (GDP) growth for fiscal 2026 by a range of 0.2% to 0.4%, according to forecasts by economists.
The Bank of Baroda research cut inflation adjusted GDP growth rate estimates to come in at 6.6%, down from the Union Budget forecast of 6.8%.
Going by the Budget document, the real GDP for India would have been ₹200.7 lakh crore. The tariff effect would reduce this to ₹200.3 lakh crore, as it would grow at a slower 6.6%, according to BoB estimates.
Barclays trimmed estimates to 6.5%, which would mean that GDP would be further lower at ₹200.1 lakh crore.
On inflation, researchers at BoB said it was expected to be caused by exchange rate volatility and the effect would largely be on the whole sale price index (WPI) inflation.
“Our analysis showed that a 10% depreciation in INR can lead to a ~0.12-0.16% increase in WPI in the short run, and 0.38%-0.49% in the long-run.”
On monetary policy, economists at Elara Securities expect RBI to cut rates by 50 basis points in FY26.
The Ministry of Commerce, in a statement, assured that options are being examined and economists too express the possibility of negotiations with the U.S. This is expected to mitigate the risks that may arise from tariffs.
The tariffs are expected to hit 9-11% of India’s exports to the U.S., according to the economists.
This includes electronics, precious stones and machinery besides readymade garments, according to BoB. These sectors constitute a large share of small and medium enterprises, BoB said.
Economists at Barclays, however, estimated a higher share of 11% of exports being hit.
India’s exports to the U.S. were valued at about ₹6.4 lakh crore in FY24, the latest for which full-year data is available with the MInistry of Commerce and Industry. A tenth of this (assuming the higher estimate made by BoB research) would mean a dip in exports of about ₹64,000 crore.
Up to January 2025, India’s exports to the U.S. were at ₹5.76 lakh crore, which is already 2.4% lower than the same period in FY24, without accounting for the tariff effect. The 10-month export number covers more than 90% of the full year numbers. Tariffs would hit exports to the U.S. by ₹57,000 crore.
Tariffs would also hit company earnings in India as export turnovers can reduce and companies might have to cut prices for competitive edge, BoB Research said. “This is something which banks would also need to monitor given their exposures to these sectors,” it added.
Published – April 04, 2025 10:19 pm IST
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