US Tariff to Impact India’s FY26 GDP Growth by 25–30 bps

The imposition of a 25 per cent tariff by the United States is projected to affect India’s GDP growth for FY26 by 25 to 30 basis points (bps), according to a recent SBI Research report. Officials from the bank’s Economic Research Department (ERD) have highlighted that the move will bring deflationary pressure in India due to reduced external demand, though India’s diversified export portfolio may soften the blow.

India’s Trade Exposure to the US

The United States is India’s largest export destination, accounting for 20 per cent of exports in FY25. Data shows that in the current financial year till date (FYTD 26), the US share in India’s exports has risen to 22.4 per cent, despite an earlier 10 per cent tariff.

The top 10 export destinations — the US, UAE, Netherlands, UK, China, Singapore, Saudi Arabia, Bangladesh, Germany, and Australia — together contributed 53 per cent of India’s total exports, demonstrating India’s diversified trade base.

Officials observed that even after earlier tariffs, trade volumes with the US did not decline, showing the resilience of Indian exports.

Key Sectors Likely to Be Hit

The 25 per cent tariff is expected to weigh heavily on certain primary export sectors, including,

• Electronics
• Gems and Jewelry
• Pharmaceuticals
• Nuclear Reactors and Machinery

These categories together account for 49 per cent of India’s total exports to the US.

Earlier tariffs varied between 0 per cent and 10.8 per cent, but under the new decision, all of these products will now face a flat 25 per cent duty. This uniform tariff could challenge the competitiveness of Indian goods in the American market.

PLI Scheme and GST Reforms Supporting Exports

The report notes that despite these challenges, certain Indian sectors have benefited from government-led policy support,

• Smartphone and photovoltaic cell exports to the US have surged under the Production Linked Incentive (PLI) scheme.
• The rationalization of GST on cut and polished diamonds has significantly boosted the gems and jewelry trade.
• Other categories have experienced growth due to the robust demand from the US market, which may continue to provide a cushion against tariff shocks.