The Chief Economic Advisor, V Anantha Nageswaran, is confident that the impact of Trump's tariffs on the Indian economy will be short-lived, and a resolution should be found soon.
CEA Nageswaran was speaking to media on August 29 after the June quarter GDP fineprint, which showed economy growing at 7.8 percent -- much higher than the market consensus (of 6.6 percent).
"There is some uncertainty with respect to period till which additional 25% tariff will stay. There is an expectation that we will see some resolution in not-so-distant future," said the Chief Economic Advisor. "We are using this opportunity to look at domestic reforms, deregulation, GST rate rationalisation."
"The industry has planned its strategy, and made plans to absorb some portion of the additional tariffs -- specifically the gems and jewellery sector," he added. In the CEA's assessment, the additional tariffs are expected to be 'short-lived'.
On talks with China, Nageswaran said if the trade-relations improve, the civil aviation sector will be benefited.
The CEA also added that the growth target for FY26 will be retained as of now between 6.3-6.8%, as the proposed GST reforms are likely to strengthen consumption. "The domestic demand is expected to strengthen in coming quarters, with the onset of festive period and GST rate changes," Chief Economic Advisor added.
The recent RBI rate cut is expected to reduce borrowing costs and boost consumption and investment, said the CEA, sounding confident of a strong festive season.
"The domestic demand situation is becoming clear, and will offset trade uncertainty to a large extent. That will drive investments by private sector and industry has shown their optimism for the same," CEA noted, adding that corporates have ample resources for capital formation.
On the Q1 FY26 GDP numbers, the CEA pointed out that private final consumption expenditure's share in GDP in the first quarter has risen to its highest level in the past 15 years at 60.3 percent -- pushing up growth.
A senior source in the finance ministry told Moneycontrol that real GDP grew by 7.8% in Q1 FY26, reflecting strengthening momentum in the economy, anchored by strong macroeconomic fundamentals.
"The high frequency indicators had been green-signalling the potentially higher numbers. As you can see, supply-side growth was driven by manufacturing, construction, and services, reflecting an all-round growth. On the demand side, robust expansion in PFCE (7.0%) and GFCF (7.8%) underpinned performance. The government’s capital expenditure also sustained the momentum in GFCF’s growth," said the source.
Nageswaran added that the Q1 figures were pushed up also due to a higher growth in net indirect taxes (at 18% year-on-year), which wouldn't sustain the next three quarters. With a 7.8 percent print, India's GDP growth in Q1 is higher than that of China, Indonesia, USA, Japan, UK, France, Mexico and Germany.
Nageswaran noted that the actual figure for Q1FY26 was much higher than the market-estimates, because data from IIP doesn't show the GVA numbers, which is extrapolated from results and MCA data.
He highlighted that the high-volume transaction data through UPI is also not closely tracked by economists, which is used for calculating services GVA data, and has been a key reason for higher than expected growth in Q1.
"Once the new base is introduced, for GDP, IIP and other macro-indicators...we will see an improvement in GDP estimation too," said the CEA.
Going forward, higher-kharif sowing supported by above-normal rainfall, comfortable buffer stocks and better output prospects for agriculture are expected to keep the food inflation benign, noted the CEA.
However, near-term risks to economic activity, principally exports and capital formation, remain due to tariff-related uncertainties, he said.
Nageswaran also lauded S&P Global's upgrade of India's sovereign ratings. "India’s strong fundamentals earned a sovereign rating upgrade by S&P to BBB, a well-deserved recognition of robust macro performance," the CEA said.
In a presentation circulated with reporters, the CEA has enlisted the measures that will boost exports. He writes that India–UK FTA has been concluded; and active talks are on with EU, New Zealand, Chile & Peru to open new markets, will improve exports.
To support textile exports, the cotton import duty exemption has been extended up to December 31, 2025. And refunds under the GST system rose by nearly 67% in July, which would aid cash flows for businesses -- to augment exports.
Additionally, the Export Promotion Mission announced in Union Budget 2025-26 will facilitate easy access to export credit, cross-border factoring support, and support to MSMEs to tackle non-tariff measures in overseas markets, wrote the CEA.
Nageswaran further mentioned that the Central government will ensure that there is no fiscal slippage this financial year, despite a lower-than-anticipated tax revenue growth so far. In April-July, gross tax revenue growth has been only 0.8 percent, while the Budget has pegged the full year's growth target at 10.8 percent.
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