US Tariffs Pose Risk On India's GDP Growth, May Widen Current Account Deficit

The growth in India's gross domestic product can see some downside risks, while the current account deficit can widen for the ongoing fiscal after the US' imposition of tariffs on India, according to economists.

US President Donald Trump said on Wednesday that India would pay a tariff of 25% from Aug. 1. In a post on Truth Social, he also added that India would pay a penalty for its purchases of Russian military equipment and Russian energy.

The 25% tariff rate is certainly a negative development compared to lower rates for peers like Vietnam, Indonesia and the Philippines, which compete with India in a similar category of labour-intensive products and electronic goods, according to Garima Kapoor, executive vice president of Elara Capital.

The exact details of the tariffs on the exempted items, such as pharma, and the ones that were charged at a differential rate, such as iron, steel and auto, is unknown as of now, but inclusion of pharma into tariffs should be incremental negative for India’s exports as US accounts for more than 30% of India’s pharma exports, she said.

"If no deal is signed by September-October, we see a downside to full year GDP growth estimate for India by 20 basis points," Kapoor said.

"The good part is that almost half the year is behind us... we have seen frontloading of exports even from India in the first half," said Gaura Sengupta, chief economist at IDFC First Bank.

While Sengupta continues to estimate GDP growth at 6.3% for FY26, how India trades in crude going forward, where it imports from and at what rates, will influence the current account balance trajectory, she said.

While she expects oil to average $75 per barrel, cost might move up by $4–5 per barrel if India moves away from Russian supplies, Sengupta said. While India currently imports over a third of its supplies from Russia, in terms of pricing, Iraq, too, provides crude at similar costs while Saudi Arabia and the UAE are more expensive, she added.

Some weakness is expected in exports in the second half of the year, with global trade uncertainty, too, expected to show its impact on global growth eventually, Sengupta said. She currently estimates the current account deficit at 1% as a share of the GDP.

On the positive side, it is pertinent to note that any hotchpotch deal, which would have compelled India to give concessions to its agriculture and dairy sector, may have had much deeper ramifications politically, socially and, eventually, on livelihoods, Kapoor said.

"A well-negotiated deal that addresses all aspects of trade, investment and tariff and non-tariff barriers by September, October 2025 is likely to yield long-term benefits than a hurried deal," Kapoor said.