India-US trade deal may boost New Delhi's growth outlook: CEA Nageswaran

Dalal Street isn’t the only place seeing a lift today after India-US trade pact announcement-- India’s economic growth is now eyed higher.

India may grow faster than the government’s earlier projections after the United States sharply lowered tariffs on Indian goods, Chief Economic Adviser V. Anantha Nageswaran said, signalling a possible upside to the country’s near-term outlook. In the Economic Survey released last week, the government had projected growth of 6.8% to 7.2% for the next fiscal year.

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“We are looking at probably something close to this year’s growth estimate of 7.4%,” Nageswaran said in an interview with Bloomberg Television on Tuesday. “That could be my first guess but I need to go back to my spreadsheets,” he added, noting that Washington’s tariff announcement came only late on Monday.

Under the new understanding announced by US President Donald Trump, the US will cut its levy on Indian goods to 18% from 25%, a rate lower than that faced by most Asian peers. An additional 25% punitive duty linked to India’s purchases of Russian oil has also been scrapped. Posting on social media, Trump said Prime Minister Narendra Modi had agreed to buy $500 billion worth of US goods and also claimed that New Delhi agreed to halt crude purchases from Russia, a long-standing demand of Washington.

Lower US tariffs remove a major external headwind for India at a time when global demand remains fragile. Cheaper access to the American market is expected to support Indian exports and revive investment sentiment, especially in manufacturing sectors linked to global supply chains. The shift could also make India more attractive to multinational firms looking to diversify production away from China, reinforcing India's aim of Viksit Bharat by 2047.

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The significance also stands out in the numbers. According to the US Trade Representative, total US goods and services trade with India reached an estimated $212.3 billion in 2024, up more than 8% from the previous year. Goods trade alone was $128.9 billion, with India exporting $87.3 billion worth of goods to the US.

Moody’s Investors Service said the easing of trade barriers could support India’s medium-term growth outlook if it leads to stronger capital inflows and export momentum. “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. Lower tariff rate will also be credit positive for labor-intensive sectors such as gems, jewelry, textiles and apparel, which rank the top export sectors."

However, Moody's said that pharmaceuticals and consumer electronics are unlikely to be affected by the tariff reduction as the exemption existed.

Financial markets welcomed the policy signal. The rupee posted its biggest gain in more than three years on Tuesday, and Indian stocks jumped the most since 2021, reflecting expectations of stronger growth and improved external conditions.

Crude costs not a concern, says CEA

Meanwhile, Nageswaran played down the risks pn concerns that cutting back on discounted Russian oil could raise energy costs. Crude prices of $60 to $70 a barrel are “not something historically problematic for the Indian economy,” he said, while declining to comment on how India might scale up energy purchases from the US over the next five years.

Moody's, however, cautioned on pausing Russian oil imports. "Even though India has reduced its purchase of crude oil from Russia in recent months, it is unlikely to cease all purchases immediately which could be disruptive to India’s economic growth. A complete shift toward non-Russian oil could also tighten supply elsewhere, raise prices and pass through to higher inflation given that India is one of the world’s largest oil importers,” Moody’s said.

The Kremlin has responded to Trump's claims and said that Moscow hasn't heard from India on pausing purchase of oil from Russia.

'India-US deal too soon to celebrate'

However, trade analysts have urged caution until the fine print is clear. Ajay Srivastava of the Global Trade Research Initiative (GTRI) said India should not rush to celebrate the announcement. “The Truth Social post leaves major questions unanswered—what products are covered, what the timelines are, and whether India has really agreed to zero tariffs and zero non-tariff barriers, especially in sensitive areas like agriculture and regulated imports,” he said. “Until there is a joint statement, negotiated text and clarity on enforcement, this should be seen as a political signal — not a final deal.”

Other economists are also preparing to revise their forecasts upward. “The tariffs were a drag on our growth forecast of 6.9% for the next fiscal. Now that it is gone, our forecast may go up by 20 to 30 basis points under the current series,” Bloomberg quoted Sakshi Gupta, economist at HDFC Bank Ltd, as saying.

(With inputs from Bloomberg)