Indian government economic advisors warn: Trump tariffs may drag GDP growth down by 0.5%

In response to Trump's imposition of tariffs as high as 50% on India, the Indian government's economic advisor 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 forecast of 6.3%-6.8%.

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

The extent of this impact will depend on the duration of the tariff policy; if uncertainty extends into the next fiscal year, the shock will be further amplified.

According to CCTV News, Trump raised tariffs on Indian goods to 50% last month to punish India for purchasing Russian oil. This tax rate is the highest in the Asia region, causing Indian goods to lose price advantages compared to manufacturing competitors like Vietnam and Bangladesh.

Despite facing external pressure, Nageswaran still maintains the government's economic growth forecast of 6.3%-6.8% for the fiscal year 2025-26. He pointed out that the strong performance in the April-June quarter and recent tax cuts provide support for the economy.

The Scale of Tariff Impact Depends on Duration

Nageswaran stated on Monday:

"I hope the additional punitive tariffs are a temporary phenomenon. Depending on their duration in this fiscal year, they could impact GDP by 0.5% to 0.6%."

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

As the largest export market for India, the tariff increase will have a ripple effect on multiple industries. Labor-intensive sectors such as textiles and jewelry are expected to bear the brunt of the impact, as these industries are highly sensitive to price changes, and the increased tariffs will directly affect their sales performance in the U.S. market.

High tariffs not only affect existing orders but may also lead U.S. buyers to turn to other supply countries, posing a threat to the long-term development of related industries in India.

Maintaining Economic Growth Forecast

Despite facing tariff pressures, Nageswaran stated that the government will stick to its growth forecast of 6.3%-6.8% for the fiscal year ending in 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%, marking the fastest growth rate in over a year.

Recent tax cuts introduced by the Indian government and inflation levels at an eight-year low provide important support for economic growth. Nageswaran pointed out that reductions in consumption tax and direct tax will enhance disposable income and consumer spending, becoming key drivers of economic growth Last week, India lowered the Goods and Services Tax rates on most daily necessities, aiming to stimulate domestic demand. Nageswaran expects this tax reform to boost GDP growth by 0.2%-0.3%.

In terms of fiscal policy, Nageswaran stated that India is expected to achieve its fiscal deficit target of 4.4% for this fiscal year. The central bank's substantial dividends and asset sale revenues will help alleviate any revenue gap pressure.

This fiscal robustness provides India with a buffer to cope with external shocks. In the context of facing tariff pressures from the United States, a strong fiscal position gives the government more policy space to support affected industries and maintain economic growth momentum