Indian government economic adviser warns: Trump tariffs may drag down GDP growth by 0.5%

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Facing Trump’s imposition of tariffs as high as 50% on India, the Indian government’s economic adviser warned that this move could drag down the country’s GDP growth by 0.5 percentage points, but the government still insists on maintaining its annual growth expectations at 6.3%-6.8%.

On September 8, according to media reports, India’s government economic adviser V. Anantha Nageswaran warned that the 50% tariffs imposed by Trump could drag down India’s GDP growth by about 0.5 percentage points this year. He emphasized:

The extent of the impact will depend on the duration of the tariff policy. If the uncertainty continues into the next fiscal year, the impact will be further amplified.

According to CCTV News, last month Trump raised tariffs on Indian goods to 50% to punish India’s purchase of Russian oil. This rate is the highest in Asia, causing Indian products to lose price advantages compared with manufacturing competitors such as Vietnam and Bangladesh.

Despite external pressure, Nageswaran still maintains the government’s economic growth expectations of 6.3%-6.8% for fiscal year 2025-26. He pointed out that the strong performance in the April-June quarter and recent tax relief measures have provided support to the economy.

Tariff shock scale depends on duration

On Monday, Nageswaran said:

"I hope the additional punitive tariffs are a temporary phenomenon. Depending on how long they last in this fiscal year, they may impact GDP by 0.5% to 0.6%."

He emphasized that if the tariff uncertainty extends into the next fiscal year, the impact will be "greater" and pose a significant "risk" to India.

With the US as India’s largest export market, the tariff hike will trigger a chain reaction across multiple industries. Labor-intensive sectors such as textiles and jewelry are expected to bear the brunt, as these sectors are highly price sensitive and the tariff increase will directly impact their sales performance in the US market.

High tariffs not only affect existing orders; they may also prompt US buyers to switch to other supplier countries, posing a threat to the long-term development of India’s related industries.

Maintaining unchanged economic growth expectations

Despite tariff pressures, Nageswaran said the government will stick to its growth forecast of 6.3%-6.8% for the fiscal year ending March 2026. This optimistic outlook is mainly based on the strong performance in the April-June quarter, during which India’s economy grew by 7.8%, the fastest pace in more than a year.

Recent tax cuts and inflation hitting an eight-year low have provided crucial support for economic growth. Nageswaran noted that reductions in consumption and direct taxes would increase disposable income and consumption, becoming key drivers of economic growth.

Last week, India lowered the goods and services tax (GST) rates on most daily necessities to stimulate domestic demand. Nageswaran expects this tax reform to boost GDP growth by 0.2%-0.3%.

On fiscal policy, Nageswaran said India is expected to achieve a fiscal deficit target of 4.4% for this year. The central bank’s hefty dividend and asset sales will help ease any revenue gap pressures.

This fiscal soundness provides India with a buffer to handle external shocks. In the face of US tariff pressure, a healthy fiscal position gives the government more policy space to support affected industries and maintain economic growth momentum.

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