US tariffs pose uncertainty, but India-US trade deal could flip headwinds into tailwinds: FinMin

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The Finance Ministry says that despite global challenges, India remains a promising investment destination, with policies aimed at strengthening growth prospects and a resilient economic outlook.
US tariffs pose uncertainty, but India-US trade deal could flip headwinds into tailwinds: FinMin
India has the potential to remain one of the most promising destinations for investment despite the current headwinds, says the Finance Ministry. Credits: Getty Images

The imposition of reciprocal tariffs by the US, particularly a 26% tariff on Indian imports effective April 2025, has injected uncertainty into India’s export outlook, but a successful US-India trade agreement could flip current headwinds into tailwinds, the Finance Ministry has said in its latest Monthly Economic Review bulletin for April.

"The imposition of reciprocal tariffs by the US, particularly a 26 per cent tariff on Indian imports effective April 2025, has injected uncertainty into India’s export outlook. Although a 90-day suspension of new tariffs is in place pending bilateral negotiations, the risk of renewed trade barriers remains a key external vulnerability. Private sector capital expenditure could lag, with firms adopting a more cautious stance amid global uncertainty and tighter financial conditions. A successful US-India trade agreement could flip current headwinds into tailwinds, opening up new market access and energising exports," the ministry said in its latest 25-page monthly economic report.

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Despite global uncertainties, the ministry thinks the outcome of a pause in the US-China reciprocal tariffs will be important. The passage of the US Budget Bill for the next financial year and the reaction in the US bond market, amid the recent downgrade of the US sovereign credit rating by Moody’s, will also set the tone for financial markets globally later this year, it said.

India has the potential to remain one of the most promising destinations for investment despite the current headwinds, says the ministry. "Foreign direct investors are likely to respond positively to policies that strengthen the country’s medium-term growth prospects. In particular, policies that enhance the skills and productivity of the country’s young workforce can significantly strengthen the virtuous cycle of investment and growth."

Notably, as per the IMF’s World Economic Outlook (April 2025), India’s real GDP growth for 2025-26 is pegged at 6.2%, 30 basis points lower than its previous forecast in January 2025. However, India is still expected to be the fastest-growing major economy and faced the least amount of cuts among other global economies.

According to the ministry, the revisions can be attributed to the higher levels of global uncertainties and trade tensions. "Multiple agencies project India’s growth to be in the range of 6.3 – 6.7 per cent in FY26, supported by robust domestic fundamentals, stable macroeconomic management, and growing government capital expenditure, while declining inflation strengthens this outlook."

As of April 2025, the ministry highlights, the Indian economy has seen robust domestic fundamentals, prudent macroeconomic management, and a capacity to withstand external shocks. The government's inflation outlook also remains optimistic, supported by low core inflation and a decline in food prices. "Going forward, inflationary pressures stemming from food items are expected to remain low on account of a good rabi harvest, an increase in the area sown under summer crops, and healthy buffer stocks of foodgrains."

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