Indian Economy to Sustain High Growth Momentum Despite U.S. Tariffs: CEA Nageswaran

Growth Momentum Unbroken

Chief Economic Adviser (CEA) V. Anantha Nageswaran on Saturday (August 30, 2025) expressed optimism that India’s growth momentum will remain strong in the next few quarters, even with headwinds from U.S. tariffs. Addressing a virtual event hosted by the Indian Chamber of Commerce, Nageswaran pointed to India’s 7.8% GDP growth in the quarter from April to June—the best in five quarters—as evidence of the economy’s resilience.

“The first quarter numbers were certainly better than anticipated… It bears witness to the intrinsic strength of the Indian economy and the delayed impact of some initiatives that have been taken by the government,” Nageswaran explained to PTI.
According to him, while the 50% U.S. tariff on Indian goods—partly imposed due to New Delhi’s continued imports of Russian crude—will weigh on growth in the second quarter, its impact is expected to be short-lived.

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Tariff Shock and Diplomatic Strain

On August 7, the Trump administration imposed an additional 25% duty on Indian products, citing trade barriers and Russian crude oil imports. Twenty-three days later, on August 27, it raised the duties to 50%, one of the highest in the world.

Tariff breakdown:

• 25% penalty for the purchase of Russian crude oil.
• 25% for “unfair trade” practices, such as high Indian duties on U.S. exports.

Nageswaran confirmed that these steps would suppress export activity in the near term but stressed that negotiations with Washington are ongoing and a settlement is likely.

“Some of these tariff moves will be temporary… There are discussions under way, and I do believe that some resolution will be achieved sooner rather than later,” he said.

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Silver Linings: Domestic Strength

Despite international uncertainties, India remains optimistic. The CEA highlighted factors likely to counter the tariff effect:

• Agriculture Buoyant Growth: The agricultural sector grew 3.7% during April–June, higher than last year’s 1.5% in the same quarter, thanks to a good monsoon.
• Manufacturing Boost: Manufacturing GVA grew 10.1% in nominal terms and 7.7% in real terms, indicating healthy industry activity.
• Fiscal Prudence: India’s fiscal deficit has been brought down from 9.2% in 2021 to an estimated 4.4% in FY26, curbing risk premiums and lowering borrowing costs.
• Tax Relief & GST Reform: Radical tax reduction in February and forthcoming GST rationalisation are stimulating consumption and business confidence.
• Credit Rating Upgrade: Standard & Poor’s recently upgraded India’s sovereign credit rating for the first time in 30 years, with Fitch also likely to follow.

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Domestic Protection From Tariff Bite

Nageswaran emphasized that crises tend to be catalysts, forcing governments and firms to take decisive measures. He stated that the Ministry of Finance and other agencies are working “overtime” to provide both a time buffer and financial buffer to impacted exporters.

He noted:

• GST tax relief will aid consumption.
• The job-linked incentive programme, introduced in 2024, promotes employment with incentives for both employers and employees.
• Family tax relief enables double-income families with incomes up to ₹26.7 lakh per annum to pay zero direct income tax, already reflected in increased advance tax collections.

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Trade Diversification and Policy Push

India is aggressively pursuing trade diversification to reduce dependence on U.S. markets. Trade agreements with the UAE and the UK have already been established, while negotiations with Oman and Bahrain are ongoing. Nageswaran indicated some of these deals could conclude before year-end.

Terming the ongoing crisis an “opportunity,” he called upon the private sector to diversify export markets, invest in R&D, and enhance competitiveness.

“Every one of us has a duty to make the most out of this moment to enhance how we conduct business and commit ourselves to innovation and excellence,” he noted.

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Experts’ Views

Dr. Rupa Subramaniam, Trade Economist:
“Though the tariffs are severe, their length is more significant than their magnitude. If the negotiations conclude rapidly, the lasting effect on India’s growth will be small. The local demand base is robust enough to buffer external shocks.”

Arvind Narayan, Market Strategist:
“Investors are barely concerned. The market understands this as political showmanship and not a lasting trade disruption. The GST reforms and credit rating upgrade indicate stability.”

Prof. Meera Krishnan, Delhi School of Economics:
“The agriculture bounce and fiscal prudence are positives. But India needs to be careful—too much dependence on Russia for crude may continue to be a geopolitical sore point, undermining relations with Washington.”

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FAQs

Q1. How much did India’s economy grow in Q1 FY26?
A: India’s GDP expanded 7.8%, its strongest pace in five quarters, led by agriculture, manufacturing, and services.

Q2. What is the U.S. tariff dispute about?
A: The U.S. imposed a 50% tariff on Indian goods, citing India’s Russian oil purchases and trade barriers against U.S. exports.

Q3. Will the tariffs slow down India’s economy?
A: Yes, temporarily. The impact will be felt in Q2 and partly Q3, but growth momentum is expected to remain intact afterward.

Q4. How is India mitigating the tariff shock?
A: Through tax relief, GST reform, fiscal discipline, and trade diversification with other partners.

Q5. What is the growth outlook for FY26?
A: The Economic Survey projects 6.3–6.8% growth, though stronger domestic momentum could keep it near the upper end.

Q6. How does India compare with China?
A: India remains the fastest-growing major economy, with 7.8% growth in April–June versus China’s 5.2% in the same period.

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Conclusion

Despite the turbulence caused by Washington’s tariffs, India’s economy is poised to withstand short-term headwinds. The synergy between robust farm production, manufacturing resilience, fiscal discipline, and policy reforms has generated substantial buffers.

Although Q2 may experience a tariff-led slowdown, proactive government measures and private sector resilience are likely to contain the impact. As CEA Nageswaran noted, crises often spur reform, and India seems set to emerge stronger.

The tariff dispute also highlights the importance of trade diversification and strategic balance in global relationships. With prudent management, India can transform this challenge into another stepping stone toward solidifying its position as the world’s fastest-growing major economy.