India faces economic headwinds as US tariffs bite into GDP

India’s economy could take a significant hit from the 50% tariff imposed by US President Donald Trump, potentially reducing the country’s gross domestic product (GDP) by up to 0.6% in the current fiscal year, Chief Economic Adviser V. Anantha Nageswaran stated.

Speaking in an exclusive interview with Bloomberg, Nageswaran warned of the potential fallout if the punitive tariffs remain in place.

“I hope the additional penal tariff is a short-lived phenomenon,” he said. “Depending upon how long it lasts even in this financial year, it may translate into a GDP impact of somewhere between 0.5% to 0.6%.”

The tariffs, introduced last month as a response to India’s continued purchase of Russian oil, have significantly raised the cost of Indian exports to the US—India’s largest export destination. The 50% levy is now the highest in Asia and is expected to hit labor-intensive industries the hardest, particularly textiles and jewelry, making Indian goods less competitive than those from regional rivals such as Vietnam and Bangladesh.

Nageswaran cautioned that the economic repercussions could deepen if trade tensions persist.

“If the tariff uncertainty extends into the next fiscal year, the impact will be larger,” he said, describing it as a major “risk” for India.

Despite the challenges, Nageswaran maintained the government’s official GDP growth projection of 6.3% to 6.8% for the fiscal year ending March 2026. He pointed to robust economic momentum in the first quarter as a reason for optimism. India’s economy grew by 7.8% between April and June, marking the fastest quarterly expansion in over a year.

He also highlighted recent government measures aimed at stimulating demand. These include cuts to consumption and direct taxes, as well as inflation hitting an eight-year low, all of which are expected to boost consumer spending.

Additionally, in a bid to further spur consumption, the Indian government lowered the Goods and Services Tax (GST) on many essential items last week. Nageswaran estimated that the tax reforms could contribute an additional 0.2% to 0.3% to the GDP.

On the fiscal front, India is on track to meet its fiscal deficit target of 4.4% for the current year, supported by a record payout from the Reserve Bank of India and state asset sales, which are expected to cushion any potential shortfalls in government revenue.

By Vafa Guliyeva