New Delhi, Apr 5, KNT: India’s economy may be headed for turbulent waters as the United States’ latest wave of across-the-board reciprocal tariffs sends shockwaves across global trade, posing both threats and opportunities for New Delhi. According to a recent research note by a leading financial institution, the severity of the new tariffs surpasses earlier projections and could drag India’s GDP growth by up to 30 basis points, bringing the FY26 forecast down to 6.6%.
Downside Risks from Global Slowdown, Oversupply
With the US facing a rising risk of recession—now estimated at 40%—the spillover could significantly dent Indian exports, not just in goods but also in services. For every 1% drop in global growth, India’s GDP could fall by 0.3 to 0.4 percentage points, the report warned. The threat is compounded by a potential influx of cheaper Chinese goods into India, as Beijing redirects oversupply from high-tariff US markets to others like India, putting local manufacturing at risk.
Limited Tailwinds from Tariff Arbitrage
Despite the gloom, India could see limited gains in sectors such as textiles and electronics, as it faces lower tariffs than major Asian peers like China (54%), Vietnam (42%), and Thailand (37%). The report estimates a potential boost of USD 16 billion in Indian exports to the US—roughly 3.7% of total goods exports—primarily by capturing the market share lost by Chinese competitors.
However, such gains may be tempered. Competing nations could absorb tariff shocks through currency depreciation or price cuts, blunting India’s advantage. Furthermore, India’s own export gains may be diluted due to low domestic value addition, particularly in electronics where assembly rather than full manufacturing dominates.
Bilateral Trade Deal Could Be a Buffer
Ongoing bilateral trade talks between India and the US could offer some relief. If a trade agreement is reached, India may be able to avoid or reduce the impact of current tariff structures. But this may come at a cost—such as lowering its own tariffs on US goods—which could flood the domestic market and lead to higher import costs.
RBI Rate Cuts, Currency Movements in Focus
In response to these global headwinds, economists expect the Reserve Bank of India to cut interest rates by 25 basis points each in April and June, with further easing dependent on how global uncertainties evolve. On the currency front, the Indian rupee appreciated to 85.43 against the US dollar, buoyed by relatively lower tariffs and a weakening dollar. Analysts now expect the near-term USD/INR range to shift to 84.50–86.00, with limited depreciation pressures compared to other emerging markets.
Long-Term Global Trade Concerns
A bigger worry remains the potential fragmentation of global trade into rival blocs centered around the US and China. In such an extreme scenario, the IMF warns global GDP could fall by as much as 7% over the next five years, dealing a long-term blow to export-driven economies like India.
