India’s Growth Story Meets a Roadblock: India’s economic growth story, which has stood out as the brightest in the world, is suddenly staring at a tough road ahead. From August 27, all Indian exports arriving in the United States will face a steep 50% tariff—a move that threatens to dent exports, hurt jobs, and shake overall investor sentiment.
The development comes at a time when India has been delivering consistently strong numbers. The country reported a robust 6.5% growth in FY 2024-25, and global agencies projected it to remain the fastest-growing major economy. The government, in a recent statement through the Press Information Bureau (PIB), underlined this achievement, noting:
“India’s GDP grew 6.5% in 2024-25, the highest among major economies. India’s economy continues to grow at a steady and confident pace.”
Even the State Bank of India (SBI) painted a stronger picture, estimating first-quarter growth between 6.8% and 7%, higher than the Reserve Bank of India’s (RBI) projection of 6.5%. But economists warn that with tariffs now in force, the optimism could face a reality check.
Export Sectors Under Stress
The tariffs target sectors that form the backbone of India’s trade with the U.S.—textiles, auto components, gems and jewellery, and pharmaceuticals. Together, these industries account for a large share of India’s outbound shipments to its single-largest export market.
Radhika Rao, Senior Economist at DBS Bank, explained that while U.S. exports equal just 2.3% of India’s GDP, the impact of the steep tariff will not be uniform across sectors. “Signs of downside risks to growth will also draw in the central bank’s hand. Alternate markets, stronger bilateral deals, and new trade partnerships will be key to offsetting the hit,” she said.
Jobs and Growth at Risk
The impact is not just on numbers—it’s on livelihoods. Aastha Gudwani, India Chief Economist at Barclays, told Reuters, “We estimate that 70% (around $55 billion) of India’s exports to the U.S. are now under serious threat, accelerating downside risks to growth.”
Sujan Hajra, Chief Economist at Anand Rathi Group, warned that the tariff shock could put nearly 2 million jobs at risk. “India’s trade deficit may widen by about 0.5% of GDP, growth could dip by half a percentage point, and the rupee may weaken modestly. Yet, India’s domestic demand and diversified export base can cushion the blow,” he said.
The Sentiment Factor
Beyond data, the mood in markets and industries could take a hit. Dr. Manoranjan Sharma, Chief Economist at Infomerics Ratings, said, “The tariffs could shave off 0.3-0.5 percentage points of GDP growth. That translates into factories running below capacity, exporters defaulting on loans, and shrinking job prospects for young Indians.”
Sharma added that global investors, already on edge due to geopolitical uncertainties, might view India as vulnerable to external shocks, cooling investment flows further.
RBI Stays Optimistic
Despite the turbulence, the Reserve Bank of India has kept its growth outlook steady. The RBI’s Monetary Policy Committee retained its GDP growth projection for 2025-26 at 6.5%, with estimates ranging from 6.3% to 6.7% across quarters.
This suggests that while the tariff shock is real, the central bank believes India’s strong domestic consumption and stable macro fundamentals can keep the broader growth story intact. Still, pressure on exporters, jobs, and investment sentiment is likely to remain in the coming months.
The Road Ahead
For now, India finds itself at a crossroads—balancing strong domestic resilience with new global challenges. Policymakers will need to work on cushioning exporters, exploring new trade partnerships, and keeping domestic demand strong.
As one economist put it, “India’s growth story is not over—but it now has a new test.”
