Trump’s tariff threat can shave off 30-50 bps from India’s FY26 growth, fear economists

“This broadly seems like a negotiating tactic and it remains uncertain whether it would be negotiated down ultimately,” Sakshi Gupta, Principal Economist at HDFC Bank said. “Trump's order of additional 25 percent tariff is not effective this week and therefore gives another 21 days for a deal to breakthrough. In case it does not – we will have to significantly lower FY26 GDP growth forecast to below 6 percent, baking in at least a 40-50 bps hit – double from our earlier estimates,” she added.

The Reserve Bank of India has maintained its real GDP growth projection for FY26 at 6.5 percent, expecting a resilient domestic demand, supported by strong investment activity and improving rural consumption. Separately, the Economic Survey 2024-25 has projected India’s GDP growth in the range of 6.3-6.8 percent for FY26, citing robust macroeconomic fundamentals, easing inflation, and continued momentum in infrastructure spending.

US Exports at Risk

The additional levy could affect nearly three-fourths of India’s export basket to the US, which stood at $86 billion in FY25. According to Sujit Kumar, Chief Economist at the National Bank for Financing Infrastructure and Development (Nabfid), the proposed secondary tariffs could take effective duties on certain Indian exports to as high as 50 percent.

Read More: From textile to shrimp stocks, Trump's twin tariffs leave Indian export stocks gasping

“Factoring in price elasticity on the whole, there could be a 20 percent decline in India’s exports covered under tariffs (excluding differential rate goods),” Kumar said. “There could be some losses to the US on exports to India in retaliation. On the whole, the incremental effect will be about a 30 bps loss to GDP this fiscal year if tariffs stay for the remaining months ahead.”

He added that these measures appear to be a pressure tactic by the US President to extract concessions from India as part of the ongoing trade negotiations. “We are likely to see a deal emerging soon as both parties will hopefully find a middle ground. The retaliation risks spilling to other spheres of bilateral relations, which could have damaging consequences for both economies,” he said.

Diplomatic Discord

Trade policy experts see the US move as counterproductive at a time when both nations are actively engaged in resolving existing trade differences and forging a long-term trade agreement.

“It is disappointing to see additional tariffs being announced at a time when we are actively working towards resolving the earlier differences and to strengthen our trade relationship through a trade agreement,” Agneshwar Sen, Trade Policy Leader at EY India said. Read More

“Announcing another 25 percent tariff places unnecessary strain on the trade environment. While nations have the right to address trade concerns through tariff measures, political differences are best resolved through mutual dialogue and established forums, not through such measures,” Sen said, hoping that the Indian government will continue to pursue a balanced resolution with the US.

The proposed tariff hike falls under the category of secondary tariffs – a follow-up measure applied in addition to existing levies. Once enforced, these could effectively double the total import duty faced by Indian goods entering the US market. Key sectors at risk include agriculture, textiles, engineering goods and auto components – all of which are contributors to India’s job growth.