The tariff war initiated by the US is likely to disrupt global supply chains and impact India’s exports, particularly in sectors such as textiles, pharmaceuticals, and auto components, according to a Crisil report. The evolving trade tensions and increasing protectionism by the US could create headwinds for India's export sector, posing a fresh challenge to economic stability, the rating agency said.
The report highlights that India’s merchandise trade surplus with the US has been steadily increasing, reaching $33.6 billion in 2023, making it vulnerable to retaliatory tariff actions. “India now faces potential challenges from US protectionist policies, which could result in higher duties on key export sectors,” Crisil’s India Outlook March 2025 stated.
The tariff war is also expected to increase competitive pressure on domestic manufacturers, as higher tariffs on Chinese goods may lead to an influx of cheaper Chinese imports into India. This could disrupt Indian businesses, particularly in industries that directly compete with Chinese products.
Rupee seen at 88/$ by March 2026
The Indian rupee is expected to remain volatile as trade uncertainties and geopolitical risks weigh on capital flows. According to Crisil, the rupee is projected to settle at 88 per US dollar by March 2026.
“India’s current account deficit (CAD) is expected to rise mildly to 1.3 percent of GDP in fiscal 2026,” the report stated, adding that higher goods imports and subdued export growth could put further pressure on the currency. However, it noted that a strong services trade surplus and steady remittance flows would help contain the deficit.
The report also warned that capital outflows from emerging markets, including India, have intensified amid rising US protectionism. “With the rupee coming under pressure in fiscal 2025, we compare the hit with one of the previous prominent periods of rupee depreciation during fiscal 2014,” Crisil noted.
Food inflation to ease to 4.4 percent in 2026
Food inflation, which has been a persistent concern, is expected to moderate to 4.4 percent in fiscal 2026, down from 4.9 percent in fiscal 2025. The projected decline is attributed to normal monsoon, stable global food prices, and lower crude oil costs, the report noted.
“Food inflation intensified for the third straight year, with its contribution to headline CPI rising each year — to 66 percent in fiscal 2025 (April-January) from 55 percent in fiscal 2024, 39 percent in fiscal 2023, and 27 percent in fiscal 2022,” the report said. However, it projected a cooling of food prices in fiscal 2026, primarily due to improved agricultural output and a stable global commodity price outlook.
Crisil expects inflation to moderate to 4.4 percent in fiscal 2026 from an estimated 4.7 percent in fiscal 2025, reinforcing the Reserve Bank of India's (RBI) stance on potential monetary easing. “We expect the Monetary Policy Committee (MPC) of the RBI to cut the repo rate further in fiscal 2026, following a 25 basis points (bps) cut in February 2025,” the report added.
GDP growth steady at 6.5 percent in 2025-26
Despite global trade uncertainties, India’s economic growth is expected to remain at 6.5 percent in fiscal 2026, supported by domestic consumption and stable infrastructure investments.
“In fiscal 2026, growth will be supported by easing monetary policy and government measures to boost private consumption. The budgeted 10.1 percent increase in government capital expenditure (capex) will also be supportive,” the report stated. However, it warned that the risks to growth remain tilted to the downside, given the escalating tariff war and its potential impact on trade and investments.
The report underscored that government capex remains a crucial driver of economic stability, with the Centre budgeting 3.1 percent of GDP for infrastructure investments. “Although the government is normalising capex growth after an extraordinary push post-pandemic, it will remain growth-supportive due to multiplier effects,” Crisil said.
Private sector investments, however, need to step up to sustain long-term economic momentum. The Production Linked Incentive (PLI) scheme allocation is budgeted to rise by 87 percent in fiscal 2026, with a focus on electronics, textiles, automobiles, and components.
As India steers through the global economic turbulence, the report emphasised that the strength of domestic demand, investment momentum, and monetary policy interventions will be critical in determining its growth trajectory in fiscal 2026.
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