US tariffs may drag India's GDP growth below 6%

BMI, a Fitch Group company, lowered its forecast on India’s gross domestic product (GDP) growth by 20 basis points to 5.8% for the current financial year. In 2026-27, growth is likely to slip further to 5.4%.

New Delhi: India’s economic growth is likely to slip below 6 per cent in 2025-26 and remain sluggish the following year also if the 50 per cent US tariffs on Indian goods, which came into effect on Thursday, continue for the rest of the year, research agencies and analysts said.

BMI, a Fitch Group company, lowered its forecast on India’s gross domestic product (GDP) growth by 20 basis points to 5.8 per cent for the current financial year. In 2026-27, growth is likely to slip further to 5.4 per cent.

Japanese brokerage firm Nomura has also cut its projection on India’s economic growth for the current fiscal to 5.8 per cent from its earlier forecast of 6.2 per cent. If the 25 per cent penalty tariff is lifted in three months, as per Nomura, India’s GDP may grow by 6 per cent in the current financial year.

Analysts warned that weaker exports will result in job losses and hit private investments. However, the proposed reforms in the goods and services tax (GST) are likely to cushion the economy by boosting domestic consumption and demands.

“US reciprocal tariffs on Indian goods rose to 50 per cent on August 27, and we have revised down our FY2025/26 and FY2026/27 GDP forecasts by 0.2 percentage points each,” BMI said.

“On the flipside, the GST reform mooted by Prime Minister Narendra Modi will boost private consumption once it takes effect, likely in October,” it added.

In his address on Independence Day, Modi promised to reform GST and lower taxes by Diwali. The decision regarding the GST reforms is likely to be taken in the upcoming GST Council meeting, which is scheduled on September 3-4. Rollout of the reform measures is likely to start by September-end.

According to Nomura, the high US tariffs would affect the Indian economy in multiple ways: first, it will directly hit export orders; second, it will lead to job losses, especially in employment-intensive sectors like textiles, apparel, leather goods, metals, chemicals and gems & jewellery; third, a challenging external environment may impact broader business confidence, which could lead to continued weakness in private capital expenditure.

Despite the slowdown, India will remain among the fastest growing major economies and will continue to post above 6 per cent growth by the end of the decade.

“We forecast India's economic growth to steadily slow to just above 6.0nper cent by the decade's end, slightly below the 2010-2019 pre-pandemic average of 6.5 per cent, yet still positioning India among Asia's fastest-growing economies,” BMI said.