Penal tariffs may dent India’s GDP by up to 0.6%: CEA V. Anantha Nageswaran

Chief Economic Advisor (CEA) V. Anantha Nageswaran has said additional penalty tariff of additional 25% may dent the Indian GDP by up to 0.5%-0.6%, while adding that if the tariff uncertainty continues into the next year, the impact on the GDP is likely to be higher.

In an interaction with Bloomberg TV, Nageswaran said depending on how long the tariff issue lasts in the current financial year, it may impact on a GDP impact of somewhere between 0.5%-0.6%. He, however, pointed out that the impact may be larger and could pose higher risk to India, if the tariff issue continues for longer.

On July 30, U.S. president Donald Trump threw the US-India trade talks under the bus, by announcing that the U.S. will impose penal tariffs on India for buying crude oil from Russia amid the Ukraine crisis. On August 7, U.S. imposed additional 25% penal tariffs over and above the liberation day tariff of 25%, taking the total tariffs to 50% with effect from August 27.

It may be noted that after the announcement of the stellar GDP growth numbers at 7.8% for Q1, FY26, CEA had said India will lower the GDP growth projections of 6.3%-6.8% for FY26 at the moment.

“Will the consumption growth or the higher-than-expected GDP growth offset the tariff related negative effects? The answer is yes. That is why we are not downgrading the growth estimate of the year. We have kept the range at 6.3% to 6.8%. That gives you enough indication that despite the reciprocal tariff and the penal tariff having been imposed and having seen the resilience for the first quarter and data for July, we are maintain our growth range for the full year,” Nageswaran said during a briefing on the Q1, FY26 GDP data.

Nageswaran also said the impact of the tariff disruption is likely to be short lived. He, however, pointed out that the manufacturing sector may be hit in the coming months due to the penal tariffs.

Beating all estimates, India posted gross domestic product (GDP) growth of 7.8% in Q1, FY25 up from 6.50% in the same quarter of the previous financial year. The GDP print has surpassed the projections, which pegged GDP growth rate to be around 6.6%-7% in April-June period of the current financial year.