Tariff impact may be short-lived; not downgrading FY26 growth projections: CEA

Chief Economic Advisor V Anantha Nageswaran today said the government will not downgrade GDP growth projections for the current financial year due to the penal tariff issues. 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.

“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 for 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 maintaining our growth range for the full year,” Nageswaran said during a briefing on the first-quarter FY26 GDP data.

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

“We expect the impact of the penal tariff for the purchase of the Russian crude to be short-lived. But the industry, on the other hand, has prepared its strategy. The industry plans to diversify to maintain its export performance. The impact of the penal tariff is likely to be limited to the second quarter and may not persist beyond that. It is difficult to provide a precise estimate because of the various loop effects of the tariff,” Nageswaran said.

“The downside risk is there. There are various private sector estimates, ranging from as low as 0.2% to as high as 1%, if the trend continues for a full twelve-month period. But those are extremely uncertain estimates. They don’t necessarily have to come to pass because a conversation is ongoing between the governments involved. At this stage, while we should acknowledge the downside risks, it is not necessary to expect it of a very significant nature,” he added.  

Nageswaran said the Indian economy defied expectations of modest growth of around 6.5%–7%, which was broadly the consensus range. India’s numbers are far higher in comparison to other countries that have declared their GDP numbers for the April-June quarter. The growth was particularly broad-based,” he said.