However, if the tariff uncertainty extends into the next fiscal year, the impact will be “larger,” resulting in a major “risk” for India, Nageswaran said.
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The Donald Trump administration has imposed a total of 50% tariffs on Indian exports to America, barring a few sectors, beginning August 27. The tariff increase could make Indian goods uncompetitive as many other Asia Pacific countries attract a 15-20% tariff.
The US is India’s biggest export market, and the tariffs are expected to hurt labour-intensive businesses like textiles and jewellery the most.
Domestic tailwinds support growth
Nageswaran, however, stuck to his growth forecast of 6.3-6.8% for FY26, citing strong expansion in the April -June quarter. India’s Q1FY26 GDP growth came in at 7.8%, almost 100 basis points more than consensus. Manufacturing and Services sectors are the star performers of Q1 and grew by 7.7% and 9.3% respectively.
The recent cuts in consumption and direct taxes, along with inflation at an eight-year low, are key tailwinds for the economy, as they will boost disposable incomes and spending, he said.
GST reforms to spur consumption
Last week, India lowered the goods and services tax (GST) on as many as 375 items of everyday use in an attempt to spur demand. Nageswaran expects the tax reform to boost the GDP by 0.2%-0.3%.
He said the Central government is expected to meet its fiscal deficit target of 4.4% this year, aided by higher Reserve Bank of India surplus transfer and asset sales cushion any revenue shortfall, he said.
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The GST rate cut could boost GDP growth by 10-60 bps on an annualised basis, due to higher consumption, widening of compliance and lower inflation, experts have said.
Negeswaran recently said policy steps, including the Task Force for Next-Gen Reforms, GST changes, state deregulation and easing interest rates, are expected to reduce borrowing costs, attract capital and boost consumption and investment.
However, near-term risks to economic activity, principally exports and capital formation, remain due to tariff-related uncertainties, he had said.