US tariffs to hit India’s FY26 growth: Economists

US could Trump Indian economy

Indian economy will likely receive a blow to its growth projections, as the US delivered a more-than-expected increase in tariffs on April 3, economists said on Friday.

Goldman Sachs highlighted that India’s growth is likely to settle 20 bps lower at 6.1 percent for FY26 and 30 bps lower for 2025, given the imposition of duties from the United States.

“Overall, we estimate 30 bps drag on CY25 growth from the "reciprocal" tariffs. There is a further 20 bps growth drag from services export slowdown, following the recent US GDP growth downgrade by our economists, and lower Q1 growth tracking (given tepid high-frequency data),” researchers of the global investment bank wrote in a note.

Indian economy likely grow 6.5 percent in FY25, as per second advance estimates released by the government.
On the other hand, SBI research unit pegged the impact in first year at 20 bps, going up to 50 bps over three years. Using another model, SBI research contended that the impact could be 50 bps.

While Goldman Sachs noted that there is unlikely to be retaliation from India as both countries move towards a trade deal, SBI Research was of the view that the move could deliver a comparative advantage for India.

“We expect India will have competitive advantage by structurally adjusting its trade drivers, value addition and proliferation,” SBI Research said.

HDFC Bank economists pointed to a potential 0.3 percentage point dent on growth.

“A sharp global growth slowdown, particularly in the US (with odds of a recession now increasing to 40%), could lower India’s total export volumes – not just in goods but also services. We believe that this is a biggest risk to India GDP growth (estimated at 0.3-0.4 ppt for a 0.8-1% drop in global growth), more so from the direct impact of US tariffs. Moreover, with tariffs of over 50% on China, the risk of oversupply flowing into India and hurting domestic manufacturing remains high,” said HDFC Bank economists in a note.

US President Donald Trump on April 3 announced a baseline tariff of 10 percent for all goods entering its territory and variable tariffs between 15-50 percent on 57 jurisdictions.

Indian goods are expected to face duties of 26 percent, while China is taxed 54 percent and Vietnam 47 percent.

Goldman Sachs noted that the US tariffs are likely to push India’s central bank to go for a more aggressive rate cycle than earlier.

“Given the growth drag, and with sub-4% inflation forecast by Q4, we forecast an additional 50bp monetary policy easing in CY25—25bp each in Q2 and Q3, totaling 100bp of rate cuts in this cycle. We expect incremental rate cuts, easier liquidity conditions, and factor in our commodity team's lower oil price forecasts to provide 20bp offset to the growth drag,” it said.

The Reserve Bank delivered its first rate cut in February this year and is likely to do so again at the upcoming meeting in April.

“For the RBI, we expect 2 consecutive rate cuts – one in April and second in June 2025 of 25bps each. Beyond this the possibility of another rate cut (later in the year) now emerges depending on how global headwinds pan out,” said HDFC Bank economists.