Tariff Impact Transitionary, Full-Year GDP Growth Forecast Unchanged At 6.3–6.8%: CEA

India's gross domestic product growth forecast for financial year 2025-26 remains unchanged at 6.3-6.8%, Chief Economic Advisor Anantha Nageswaran said on Friday, in a press briefing following the higher-than-estimated GDP growth numbers reported for the first quarter.

The country's GDP grew at 7.8% in the April-June period, as against 6.7% estimated by the analysts tracked by Bloomberg. This was also the highest in the last five quarters.

CEA Nageswaran, during the briefing, said the impact of high import tariffs levied by the United States will be transitionary. The fallout from tariffs is likely to be concentrated in the second quarter (July-September), according to him.

India's gross domestic product growth came in at 7.8% in the April-June period, Chief Economic Advisor Anantha Nageswaran expects the economic momentum continuing in the second quarter. However, the GDP growth range for the full year is still retained at 6.3-6.8%.

According to the CEA, overall, aggregate demand growth in the economy should hold up, with September likely to witness a pick-up in consumption. While it is hard to provide a precise estimate of the impact of tariffs on GDP due to secondary effects and wider implications, Nageswaran believes the disruption will be short-lived.

Indian exports to the US are facing levies as high as 50% from Aug. 27 onwards. Nageswaran said he is hopeful that the tariff row will be resolved sooner rather than later.

Industry, meanwhile, has already started making adjustments to manage the tariff burden, he added. Companies are planning to distribute some costs along the export chain, absorb part of the expenses, and diversify exports to reduce dependency. The impact of tariffs will likely be concentrated in certain manufacturing sectors.

The CEA acknowledged that downside risks remain, though it is not necessary to assume that the effect will be significant. However, the final impact could be lower than initially feared.

He further noted that discussions between India and the US are ongoing, and the additional 25% tariff is likely to be temporary. Stronger consumption growth is expected to partly offset the drag from tariffs. Importantly, there has not been much evidence of front-loading of exports since tariff concerns only emerged in July.

The chief economic advisor stressed that the government is committed to fiscal frudence for financial year 2026. The statement assumes significance as it comes ahead of the planned tax slab cuts under the GST regime.

As per the proposal pending before the GST Council, the tax slabs of 12% and 28% could be eliminated, bringing majority of the goods and services under the 5% and 18% slab. The decision on this proposal would be taken by the council during its meeting on Sept. 3-4 in New Delhi.

Nageswaran said that the government has brought down fiscal deficit despite the challenging conditions. According to him, the effect of direct and indirect tax benefits will ensure strong demand and offset some impact from external uncertainty.