US Tariffs’ Immediate Impact On Indian Exports “Limited”, But Risks Loom: FinMin

The immediate impact of US tariffs on Indian exports appears “limited”, but their secondary and tertiary effects could pose significant challenges going forward, according to the Finance Ministry’s July Monthly Economic Review. The report underscores that while India’s export performance remains resilient, the evolving global trade environment—especially the uncertain US tariff regime—warrants close monitoring.

The review places renewed emphasis on the ongoing India-US trade negotiations, describing them as crucial in addressing potential disruptions.

While India is actively pursuing a diversified trade strategy—including recently concluded FTAs with the UK and EFTA, and ongoing talks with the US, EU, Chile, Peru, and New Zealand. The report cautions that such initiatives may not fully offset any sustained decline in US-bound exports if tariff barriers persist.

Despite global headwinds, the ministry paints a picture of cautious optimism for the Indian economy. Domestic macroeconomic fundamentals remain robust, bolstered by strong domestic demand, policy stability, and sustained infrastructure investment. The recent upgrade of India’s sovereign rating by S&P from ‘BBB-’ to ‘BBB’ is highlighted as a reflection of this underlying strength.

On the inflation front, the report notes that conditions are favourable. Above-normal monsoon rainfall, improved sowing of kharif crops, stable oil prices, and adequate buffer stocks are expected to keep foodgrain prices and headline inflation in check in the near term. This, in turn, could support purchasing power and consumption.

To further safeguard economic momentum, the government is actively managing external risks by strengthening domestic manufacturing capacity, diversifying supply chains, and securing alternative sources of imports. Several reform initiatives have also been announced by the Prime Minister, aimed at boosting long-term growth potential.

Key among these is the establishment of a Task Force for Next-Generation Reforms, which will focus on easing regulatory burdens, lowering compliance costs, and fostering a more conducive environment for startups and MSMEs. Additionally, upcoming Next-Generation GST reforms, aimed at reducing taxes on essential items, are expected to provide relief to households and boost consumption.

The government expects the recent sovereign rating upgrade to bring down borrowing costs, attract higher foreign capital inflows, improve access to global markets, reduce inflationary pressures, and support business expansion.

The report concludes that, despite external uncertainties, India’s economic trajectory remains anchored by long-term structural reforms, stable fiscal management, and rising investor confidence. Reforms at the state level—such as easing labour restrictions and improving business facilitation—along with employment generation schemes and skilling initiatives, are expected to further strengthen the economy’s growth prospects heading into financial year 2026.