India’s GDP and inflation set to fall after US tariff shock

India’s growth and inflation outlook for 2025-26 has been marked lower after the US imposed sweeping reciprocal tariffs on imports. QuantEco Research revised its GDP growth estimate down by 30 basis points to 6.4%, and trimmed its inflation forecast by 20 basis points to 4.1%, citing both direct trade impacts and broader global spillovers.

The headline impact stems from President Donald Trump’s Executive Order, which imposes a 10% universal tariff from April 5, 2025 and an additional 27% tariff on Indian goods from Apr 9, 2025. India’s export earnings could fall by $10 billion–$15 billion, equivalent to 0.2–0.3% of GDP. Though this drag could be partly offset by higher tariff burdens on competitors such as China, Vietnam, and Bangladesh, the global demand hit will weigh on the outlook.

QuantEco also revised its estimate for the current account deficit by 50 bps  to -0.8 % of GDP and now expects a balance of payments surplus of $10 billion, up from an earlier projection of $3 billion. It sees a 75 basis point policy rate cut by the Reserve Bank of India in 2025-26, starting with a 25 basis point move in April, as global disinflation strengthens—barring the US, where inflation is expected to rise.

According to the IMF, global GDP could see a 30 basis point reduction due to the trade shock and as much as 80 basis points if labour and financial spillovers are included. For India, the broader impact could lower growth by 24 basis points and inflation by 11 basis points.

India’s exports worth $67 billion could face the 27% tariff, although pharmaceuticals and energy products are excluded. The most exposed sectors include electrical machinery, gems and jewellery, auto components and textiles.

Despite a potential loss of $1 billion in export share to the EU and UK, India may gain $1.8 billion in market share as steeper tariffs hit China, Vietnam and Bangladesh. Still, a lasting reset in the global trade regime could keep the economic impact in play for up to three years.