FinMin Outlook: India's Strong Growth Momentum Faces Risk From US Tariffs, H-1B Visa Row

The Finance Ministry’s Economic Outlook for August has warned that the United States’ decision to impose a one-time fee of $100,000 on all future H-1B visas poses a significant risk to India’s services sector, even as the broader economic picture remains upbeat.

The report noted that India’s services exports and remittances could face disruptions if the steep visa fee persists. Reduced mobility for Indian professionals may hit future remittance inflows and dent the services trade surplus, a critical driver of external resilience, underlined the monthly report by the Department of Economic Affairs.

The ministry stressed that the policy’s impact will require close monitoring.

Despite this emerging headwind, India’s economic fundamentals remain strong. GDP growth surprised on the upside in Q1 FY26, driven by robust domestic demand. Recent GST rationalisation measures are expected to reduce the consumer tax burden, spur consumption, and provide businesses with greater demand visibility for capacity expansion.

Inflation, meanwhile, is projected to stay well contained, supported by replenished reservoirs that bode well for the winter crop and the one-time easing effect of GST rate revisions.

On the external front, the report highlighted India’s resilience, with rising FDI inflows, strong service exports, and healthy remittances reinforcing its appeal as an investment destination. Expanding international partnerships including a bilateral investment treaty with Israel and negotiations for a Comprehensive Economic Partnership Agreement (CEPA) with Oman are expected to diversify trade beyond energy imports.

India’s macroeconomic stability has also been recognised globally. Japanese agency R&I upgraded India’s sovereign rating from BBB to BBB+, the third such upgrade in FY26 after Morningstar DBRS and S&P Global Ratings. Additionally, the OECD revised India’s 2025 growth forecast upward to 6.7%, citing strong domestic demand and GST reforms.

Still, the Finance Ministry cautioned against complacency. Persisting tariff uncertainties, visa restrictions, and geopolitical frictions could spill over into India’s exports, employment, and consumption. “For now, the risks appear manageable, but they are there,” the report said, calling the US visa move a reminder that trade-related uncertainties can affect even the services sector, which has so far remained insulated.

The report urged greater investment in water storage, desilting, and agricultural productivity, alongside a strict commitment to fiscal discipline, to ensure inclusive growth and maintain lower capital costs. It also emphasised the importance of speed and precision in execution at all levels of government.

Looking ahead, the ministry underlined that regulatory reforms, infrastructure development, and cooperative federalism will be crucial in cushioning the economy from external shocks. The near-term outlook, it concluded, remains one of steady, reform-driven growth rooted in discipline and adaptive diplomacy, tempered by vigilance against global volatility.