US Tariffs and India’s FY26 GDP Growth Outlook

5 April 20251 min read

Why in the news

Newly imposed US tariffs are forecast to slow India’s FY26 growth modestly, with exporters, SME borrowers and banks facing some stress.

Expected hit to FY26 GDP growth: 20-40 bps, driven by an external shock and not weak domestic fundamentals.
GDP level could slip from about ₹200.7 lakh crore to ₹200.1-200.3 lakh crore.
FY24 exports to the US stood at ₹6.4 lakh crore; Bank of Baroda sees a fall of ₹64,000 crore, about 10%.
January FY25 exports had already dropped 2.4% year on year, before any tariff effect.
Elara Securities expects an RBI rate cut of 50 bps in FY26.

Most exposed: electronics and machinery (capital-intensive), precious stones and garments (labour-intensive, SME-heavy).
Bank of Baroda’s model: a 10% rupee fall lifts WPI by 0.12-0.16% soon and 0.38-0.49% over time, bringing imported inflation.

Exporters may cut prices, squeezing margins; SME borrowers in gems, apparel and electronics may face cash-flow stress needing closer bank monitoring.
Possible help: export credit support, incentives or SME relief; the Commerce Ministry is reviewing responses, including bilateral talks, new export markets and stronger FTAs.

Test yourself

1. By how much are US tariffs expected to reduce India's FY26 GDP growth, as per the notes?

The estimated drag is 20-40 basis points.

2. Which forecaster projected India's FY26 growth at 6.5%, a 30 bps cut from the Budget figure?

Barclays forecast 6.5%; Bank of Baroda forecast 6.6%.

3. What share of India's shipments to the US is tariff-sensitive, according to the notes?

Tariff-sensitive exports are 9-11% of shipments to the US.