India-US trade pact: Exports to US may rise, add to India’s growth momentum
NEW DELHI: A US-India trade deal is set to add to the already strong growth momentum and revive investor interest for Asia’s third largest economy as uncertainty gives way to optimism.Growth has remained strong and has gathered in strength on the back of a string of reform measures unleashed by the govt including GST rate cuts.The Aug decision by US President Donald Trump to impose stiff tariffs on India for purchasing Russian oil had stunned policymakers and exporters. Financial markets turned choppy and triggered unease about the trajectory of growth.But the economy remained resilient and growth momentum robust as it navigated the turbulent period. Latest estimates show that the economy will grow by 7.4% in the current fiscal year ending March and the projection for FY 27 is in the 6.8%-7.2% range. The surprise announcement by Trump to cut tariffs on India to 18% from 50% late on Monday night removes “uncertainity” and boost sentiment significantly.“We estimate an incremental boost of around 0.2 percentage point of GDP (annualised), if the new lower tariffs are enforced. This estimate is based on India’s goods exports exposure of roughly 4% of GDP to US final demand and a goods export demand elasticity of ~0.7,” Goldman Sachs said in a report. Earlier estimates had shown that impact on GDP growth could be in the 30-50 basis points range as the Indian economy is largely led by domestic demand which has remained intact.“Statistically speaking, we estimate lower tariffs will add 30 basis points to headline GDP growth (essentially reversing the threat posed by 50% tariffs until now).“We continue to expect a dovish hold in the upcoming RBI monetary policy committee meeting on Feb 6 as this tariff reduction becomes a meaningful tailwind,” Barclays said in a note. Moody’s Ratings said the reduction of the US tariff rate on most Indian goods will reinvigorate India’s goods export growth to the US, which remains the country’s largest goods export market, accounting for about 21% of India’s total goods exports for the first eleven months of 2025.
