US Tariffs Threaten India’s Economic Growth, Warns Crisil
The report noted that lower crude and global commodity prices are likely to help contain non-food inflationary pressures effectively.
US Tariffs Pose Major Risk to India’s Growth Despite Strong Domestic Consumption: CrisilKolkata: India’s growth story is facing a significant new challenge as the United States tightens its trade stance with higher tariffs on Indian goods. According to a fresh report by Crisil Intelligence released in September, these tariffs could slow down the momentum of India’s economic expansion, even as domestic consumption offers a cushion.
The report cautions that while India has been performing well in recent quarters, rising trade frictions with the US could have ripple effects on exports, investments, and business confidence. The United States remains one of India’s largest export destinations, and any restrictions on goods entering its markets pose a direct risk to India’s manufacturing and export-driven sectors.
**Exports and Investments Under Pressure**Crisil’s analysis highlights that the tariffs are likely to hit Indian goods exports first, given that sectors such as textiles, steel, engineering products, and chemicals rely heavily on the US market. Reduced competitiveness due to higher duties means Indian exporters may lose ground to rivals in Southeast Asia or Latin America.
The impact, however, will not stop at exports. The report suggests that foreign investments may also take a hit, as global investors weigh the risks of putting money into an economy facing external trade pressures. With multinational companies looking for stable markets to expand, uncertainty over tariffs may dampen investor sentiment, slowing the inflow of capital needed for India’s ambitious growth plans.
**Domestic Demand Provides a Silver Lining**Despite these external risks, Crisil notes that domestic demand could act as a powerful counterbalance. India’s household consumption, supported by softer inflation and recent monetary easing, is expected to provide resilience to the economy.
Inflation, particularly non-food inflation, has been easing thanks to lower crude oil prices and more stable global commodity markets. The report forecasts consumer price index (CPI) inflation softening to 3.5 percent in the current fiscal year, down from 4.6 percent last year. This decline in price pressures boosts the purchasing power of households, leaving them with more disposable income to spend.
Adding to this is the effect of recent rate cuts by the Reserve Bank of India (RBI). Between February and June 2025, the RBI cut the repo rate by a significant 100 basis points, providing relief to borrowers and lowering the cost of capital. The central bank’s monetary policy committee, however, is expected to pause after one more cut this fiscal, allowing time for the full transmission of earlier reductions to flow through the banking system.
**GDP Momentum Shows Strength**India’s economy is showing encouraging signs on the growth front. The country’s GDP expanded at 7.8 percent in the first quarter of FY 2025-26, its highest pace in five quarters. This is a notable improvement from 7.4 percent in the same quarter of the previous year.
The robust growth is being powered not just by consumption but also by strong services activity and a pickup in government spending on infrastructure. These trends reflect the underlying resilience of the Indian economy at a time when global headwinds continue to challenge many emerging markets.
However, nominal GDP growth tells a slightly different story. It slowed to 8.8 percent in Q1 FY 2025-26, down from 10.8 percent a year earlier. This moderation is largely due to softer inflation, which while positive for households, reduces the pace at which nominal growth expands.
Crisil’s report paints a mixed picture: on one hand, external risks from US tariffs and global trade tensions are undeniable; on the other, strong domestic fundamentals provide hope that India can navigate the turbulence.
For policymakers, the challenge will be striking the right balance. While the RBI has already taken steps to ease monetary policy, further fiscal measures may be needed to protect vulnerable sectors affected by the tariff shock. Export-oriented industries could require targeted support to remain competitive in global markets.
At the same time, keeping inflation in check remains critical. Lower crude oil prices and softer global commodities are doing part of the job, but sustained vigilance will be needed to ensure that food inflation or supply shocks do not upset the current trajectory.
For India, the road ahead is not without hurdles. The global trade environment is becoming increasingly protectionist, and countries like India must constantly adapt to safeguard their growth prospects. The latest US tariffs are a reminder that external shocks can emerge suddenly, reshaping the economic outlook.
Yet, there is reason for optimism. India’s strong domestic market, a growing middle class, and steady reforms in infrastructure and digitalization provide the backbone for sustained growth. As long as domestic consumption remains robust and inflation stays contained, India may still be able to post strong growth numbers despite the external drag.
Crisil’s September report ultimately underscores the duality of India’s current situation: a fast-growing economy with strong fundamentals, yet vulnerable to global trade politics. The challenge for policymakers, businesses, and households alike will be navigating this uncertain landscape with resilience and adaptability.