Chief Economic Adviser (CEA) V AnantSet featured imageha Nageswaran has cautioned that the United States’ recent decision to impose a 50% tariff on Indian goods could dampen the country’s growth prospects. Speaking to Bloomberg TV, he said the higher duty could reduce India’s gross domestic product by between 0.5% and 0.6% in the current financial year. He stressed that the longer the tariff remains in place, the greater the economic strain, calling the move a “significant risk” if carried forward into the next fiscal year.
Despite this headwind, the government has projected overall growth in the range of 6.3% to 6.8% for FY26, buoyed by a strong April–June quarter, during which the economy expanded 7.8%—its fastest pace in more than a year. Nageswaran pointed to GST reforms and easing inflation, now at an eight-year low, as key positives that will increase disposable incomes, spur consumption, and provide some cushion against external shocks.
Last week, the government reduced Goods and Services Tax rates across essential items to encourage demand. According to the CEA, the overhaul could add 0.2%–0.3% to GDP growth this year by lowering consumer costs and improving business confidence.
On fiscal stability, Nageswaran said India remains on track to meet its deficit target of 4.4% of GDP, aided by higher-than-expected central bank transfers and proceeds from asset sales.
Meanwhile, foreign portfolio investors (FPIs) have been retreating from Indian equities in response to tariff-related uncertainty. In the first week of September alone, FPIs pulled out about $1.4 billion, following outflows of $4.2 billion in August and $2.1 billion in July. This brings total FPI withdrawals in 2025 to roughly $17.2 billion, according to depository data.
Market experts noted that upcoming US Federal Reserve commentary, US labor market figures, expectations of a Reserve Bank of India rate cut, and policy signals on currency stability will influence short-term investor behavior. While volatility may persist, analysts believe India’s long-term growth prospects, ongoing policy reforms such as GST rationalization, and a potential revival in corporate earnings could help attract overseas capital once global uncertainties ease
