India’s economic growth could take a hit of 30-80 basis points this fiscal year with the US government applying a 50 per cent tariff on Indian goods from Wednesday, said economists. They however emphasised that strong domestic demand and relatively low exposure of Indian exports to the US on GDP will help cushion the blow.
“If 50 per cent tariff rate persists, economic growth could slip to or below 6 per cent this fiscal year,” said Sakshi Gupta, principal economist at HDFC Bank. She however noted potential offsets from GST rationalisation, income tax cuts, and strong rural demand to the tariff move.
CareEdge Ratings projected that if the elevated tariffs persist, India’s GDP growth could decline by 0.8-1 per cent annually. HDFC Bank is estimating a risk of 40-50 bps to its growth outlook of 6.3 per cent for FY26, while Barclays is predicting a 30 bps downside risk to its 6.5 per cent forecast.
The 50 per cent duty takes effect from 12:01 am eastern daylight time today i.e. 9:31 am Indian standard time.
India is among a few nations facing the highest tariffs alongside Brazil.
The latest change implies a weighted effective tariff of 35.6 per cent on India’s exports to the US, up from 2.7 per cent in April. In contrast, India charges a 9.4 per cent tariff on US imports, according to Barclays.
“The elevated tariff could erode India’s relative competitiveness, leading to market share losses and amplifying indirect growth impacts,” said Rajani Sinha, chief economist at CareEdge Ratings. “We expect India’s FY26 growth to moderate to 5.8-6 per cent, warranting additional policy support from both the central bank and the government.”
Exports to the US account for around 2 per cent of India’s GDP. In FY25, India exported $86.5 billion worth of goods to the US compared to $45.7 billion imports.
“Should growth slip below 6 per cent under a prolonged high tariff, we anticipate a further 50 bps reduction in policy rates, coupled with targeted fiscal support for affected sectors,” said Sinha.
Impact on rupee
Economists believe that the pressure on capital flows, market sentiment, and rupee cannot be ruled out.
“A 50 per cent tariff could weigh on sentiments, foreign flows, export growth and eventually the current account deficit,” said Gupta. “While the RBI is expected to intervene to stall sharp depreciation pressures, the rupee could eventually weaken to a range of 88-89 levels over the coming weeks,” she said.
