India's GDP to grow at 6.6% in FY26 despite tariff pressures: Report
Nomura in its recent report said that India's GDP growth rate in FY26 is projected to be 6.6 percent year-on-year, incorporating policy changes. This is under the assumption that the 25 percent reciprocal tariff will remain in place until FY26, and the 25 percent Russian penalty will be applicable only till November. On the other hand, if both sides stick to their word, resulting in the continuation of the 50 percent tariff rate, then the impact on GDP growth is expected to be 0.8 percentage points (pps) on an annual rate basis.
The current account deficit (CAD) could also narrow to around 1.1 percent of GDP. In its report 'India-US trade rift: Outlook, spillovers and strategic shifts', Nomura said job losses in export-oriented sectors could have a significant impact on investment and consumption, and there could be risks of further escalation through tariffs or non-tariff barriers.
The report said US-India trade talks have stalled after President Trump imposed 50 per cent tariffs. The deadlock still persists in the agriculture and dairy sector, as India pushes for a comprehensive agreement while the US favours a quick resolution. Domestically, Prime Minister Modi has taken a tough stand on protecting farmers, receiving rare support from opposition parties and businesses, and there is a growing emphasis on self-reliance.
With the new tariff structure, the cost gap between India and China has narrowed, and between India and Southeast Asian competitors, it has shifted in China's favour. This could have a number of implications on the nature of new supply chains, such as negative impact on textiles, leather and toys, and Indian companies could potentially shift their production to countries with lower tariffs to retain their US customer base. However, the report further states that this will only impede global value chain integration for India, not completely derail it.
Nomura expects a multi-pronged government response to support exporters and stabilise the economy. These measures are expected to include fiscal and financial support, export diversification and accelerating free trade agreements (FTAs). Structural reforms are also likely to accelerate, with rationalisation of the goods and services tax (GST) already announced. This is likely to be followed by further liberalisation of FDI, deregulation, factor market reforms, privatisation and administrative streamlining.
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