High US tariffs to dent India’s economic growth, may push GDP to 5-year low

New Delhi: India’s economic growth may slip to around 6% in the current financial year if the elevated tariffs announced by US President Donald Trump on the Indian goods remain in place for the rest of the year, brokerage firms and economists said.

According to Barclays, India’s gross domestic product (GDP) growth is likely to decline by 30 basis points due to the higher tariffs in the US.

Nomura estimates a 20 basis point decline, while Elara Capital has also pegged the drop at 20 basis points. One percentage point equals 100 basis points.

This decline may push down India’s GDP growth to close to 6%, the lowest in five years. As per the latest National Statistics Office (NSO) data, India’s GDP expanded by 6.5% in the financial year ended March 2025. This was the slowest pace of expansion in the Indian economy since Covid pandemic hit 2020-21.

Most agencies including the Reserve Bank of India (RBI) and the International Monetary Fund (IMF) have pegged India’s growth projection for the current financial year in the range of 6.2 to 6.5%.

Incidentally, the IMF earlier this week raised its FY2025-26 growth forecast for India to 6.4% from 6.2% announced in April. In its latest monetary policy review the RBI pegged the growth at 6.5%. The Asian Development Bank (ADB) has also pegged the growth at 6.5%.

Despite the slowdown India would maintain its position as among the fastest growing major economies. The growth will be driven by domestic consumption.

“We do not see this 25% tariff threat impacting GDP growth meaningfully, pegging the likely impact at 30 bps. We expect final tariffs on India to settle in lower than the announced 25%, as India and the US continue with trade deal talks," Barclays said in a note.

BMI, a unit of Fitch Solutions, said the high US tariffs will impact growth in major developed and emerging markets. “Our 2025 growth forecasts assumed somewhat lower tariff rates for most countries in our sample compared to those observed as of July 30. As a result, the actual drag on growth could be greater than previously anticipated,” BMI said in a note titled ‘Trade deals advance, but growth risks remain’.

SBI Securities Research underlined that India’s annual export to the US, which is around $85 billion, is just around 2% of the country’s GDP. “Hypothetically, assuming 50% of the exports are likely impacted then the impact can be to the tune of approx $40 billion, which is 1% of GDP,” it said.

“Now, some products will also find a way to new markets and hence total impact can be hardly to the tune of 0.5% of GDP, that too if the exports are impacted for a full year,” it added.

According to Emkay Global, the US tariff could hit India’s exports by $30-33 billion (0.8-0.9%) of GDP.

“While we believe a trade deal will be eventually negotiated between India and US, we note that even nations that have cracked a US deal so far face unfavorable elevated tariffs, despite giving sweeping concessions to the US,” Emkay Global said.