The Indian economy, which has been leading the world in growth, now faces a challenge. From August 27, all Indian exports landing in the United States will face a 50% tariff.

This comes at a time when India has reported strong growth of 6.5% in 2024–25 and has been projected to remain the fastest-growing major economy.

While the country has shown resilience so far, economists warn that the new tariffs could weigh on exports, jobs, and overall sentiment.

The government’s official statement through the Press Information Bureau (PIB) recently highlighted India’s performance.

“India’s GDP grew 6.5% in 2024–25, the highest among major economies. India’s economy continues to grow at a steady and confident pace, standing out as the fastest growing major economy in the world,” it said.

According to an analysis by the State Bank of India (SBI), India’s GDP in the first quarter of this fiscal year is likely between 6.8% and 7%, higher than the Reserve Bank of India’s (RBI) projection of 6.5%. SBI’s nowcast model estimates real GDP growth at 6.9% year-on-year for the period.

But with tariffs now in force, the future picture could change.

SECTORAL IMPACT AND EXPORT RISK

Radhika Rao, Senior Economist at DBS Bank, told Reuters that even as India’s exports to the United States amount to a modest 2.3% of GDP, the sectoral impact of the second 25% tariff kicking in on Wednesday will be asymmetrical.

“Signs of downside risks to growth will also draw in the central bank’s hand, alongside potential relief on the credit and liquidity fronts. Meanwhile, other counterefforts, including seeking alternate markets, strengthening trade and investment ties through multilateral as well as bilateral trade deals, will be important. Subject to other geopolitical developments, the door for negotiations might reopen later in the year,” she added.

Exports that may face the sharpest hit include textiles, auto components, gems and jewellery, and pharmaceuticals. Together, they make up a large share of India’s outbound trade to the US, which is its single-largest export market.

JOBS AND GROWTH IN QUESTION

The scale of impact could be large. Aastha Gudwani, India Chief Economist at Barclays, told Reuters, “We estimate 70% ($55 billion) of India’s exports to the United States are now under serious threat, accelerating downside risks to growth. From a ‘good friend’ to a ‘bad trading partner’, it has come a long way.”

Sujan Hajra, Chief Economist and Executive Director at Anand Rathi Group, told Reuters that Washington’s 50% tariff is a jolt, but hardly a knockout.

“India’s trade deficit may widen by about 0.5% of GDP, growth could dip by half a percentage point and the rupee may weaken modestly. Up to 2 million jobs are at risk in the near term. Yet the bigger picture is less gloomy: India’s export base is diversified, its corporate earnings and inflation outlook remain intact, and domestic demand is robust enough to cushion the blow,” he added.

PRESSURE ON ECONOMIC SENTIMENT

Dr. Manoranjan Sharma, Chief Economist at Infomerics Ratings, said that the tariffs could shave off 0.3–0.5 percentage points of GDP growth.

“That’s not an abstract number—it translates to factories running below capacity, exporters defaulting on loans, and young Indians staring at shrinking job prospects,” he added.

“Investor sentiment, already jittery in a world of geopolitical tremors, may cool further as India’s economic stability looks hostage to Washington’s mood swings,” said Sharma.

RBI’S GROWTH OUTLOOK

Despite global headwinds, the Reserve Bank of India has kept its growth forecast unchanged.

“The projection for real GDP growth for 2025-26 has been retained at 6.5%, with Q1 at 6.5%, Q2 at 6.7%, Q3 at 6.6%, and Q4 at 6.3%. Real GDP growth for Q1 of 2026-27 is projected at 6.6%,” said the RBI Governor after the latest Monetary Policy Committee (MPC) meeting.

This projection suggests the central bank expects the economy to absorb the tariff shock without a sharp derailment, although it could still weigh on specific sectors and jobs.

– Ends