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Informist, Friday, Aug. 29, 2025

 

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--CEA: Income tax relief, GST rate cut important offset to global trade risk 
--CEA: Govt to ensure there is no fiscal slippage in coming yrs 
--CEA: Difficult to guage shock to Q2 mfg sector growth from US tariff 
--CEA: Possible that US' tariff impact in Q2 will be lower than anticipated 
--CEA: Not necessary to expect US' tariff impact to be significant 
--CEA: Expect US' punitive tariff on India to be short-lived 
--CEA: See gilt ylds falling as mkt realises govt's fisc consolidation focus 
--CEA: No revision proposed to FY26 growth forecast of 6.3-6.8% as of now 
--CEA: Near-term risks from US tariff exist on exports, capital formation  
--CEA: Local demand seen strong in next qtrs on festive demand, GST rate cut 
--CEA: US Tariff opportunity to boost competitiveness, explore other mkt 
--CONTEXT: Comments by CEA Nageswaran at post Q1 GDP data briefing 
--Nageswaran: Despite downside risks from US tariff, retain FY26 GDP target

 

NEW DELHI – Notwithstanding the downside risks from uncertainties related to India-US trade policies and Washington's punitive tariffs on Indian goods, the government will retain its GDP growth forecast of 6.3-6.8% for 2025-26 (Apr-Mar) for now, Chief Economic Adviser to the finance ministry V. Anantha Nageswaran said Friday. "No revision in FY26 growth forecast as of now," Nageswaran said.

 

"... while we should acknowledge the downside risk, I think it is not necessary to expect it to be of a very significant nature," Nageswaran told reporters at a briefing on the GDP data for Apr-Jun.

 

India's GDP growth rose quicker than expected to a five-quarter high of 7.8% in Apr-Jun, led by higher growth in services and manufacturing sectors, data released by the statistics ministry Friday showed. The Indian economy had grown 7.4% in the March quarter and 6.5% in the year-ago quarter. 

 

Nageswaran's comments come two days after the US imposed an additional 25% tariff on Indian goods. The US imposed an additional 25% levy on Wednesday, bringing the total tariff on Indian goods to 50%. The US tariff will affect nearly 55% of India's exports to the US, worth almost $50 billion, including chemicals and fertilisers, textiles and apparel, gem and jewellery, shrimp and seafood, furniture and beddings, and machinery and mechanical appliances. 

 

Although exporters had hoped that the proposed trade deal with the US would insulate Indian exports from reciprocal tariffs, New Delhi and Washington have yet to resolve their differences over the US demand for access to India's politically and socially sensitive agricultural and dairy sectors. "Obviously, there is some uncertainty with respect to the duration of the period for which the additional tariffs related to Russian crude oil are due to last, but in general, the conversations are going on, and there is an expectation that we will see some kind of a resolution in the not-so-distant future," Nageswaran said, adding that the government is hoping that tariff-related challenges "could be short-lived."

 

In 2024-25 (Apr-Mar), India exported goods worth $86.51 billion to the US and had a trade surplus of $40.82 billion. The higher tariffs will result in a pricing disadvantage of 30–35% for Indian exports, making them less competitive compared to those from China, Vietnam, Cambodia, the Philippines, and other Southeast and South Asian countries. 

 

The government's top economic adviser said he does not see a "big dive from the first quarter numbers" in Jul-Sep due to the tariffs, despite the impact on the manufacturing sector. "... it is a safe way to say that there will be some kind of negative shock on the manufacturing numbers in the second quarter... it is very difficult to be precise about the impact," he said. 

 

According to Nageswaran, the tariffs imposed by the US present an opportunity to boost competitiveness, explore other markets, and improve domestic consumption. The government has already announced specific reforms, including deregulation and a reduction in indirect tax rates, which will give exporters the opportunity to boost profitability and explore other markets, he said. "So collectively, between the public and the private sector initiatives, we can turn this situation into one of the long-term spending opportunities," he added.

 

The chief economic adviser also said that while there will be an impact due to uncertainty in export-oriented goods, leading to a decline in demand from workers and employees in those enterprises, at the aggregate level, the effect will be offset by direct tax reductions announced in the Budget and the forthcoming indirect tax reduction. "They will be more dominant in ensuring that domestic demand remains quite strong and that will be an important offset to the external trade-related uncertainty," he said. 

 

Amidst risks from US tariffs, Prime Minister Narendra Modi has announced the next set of reforms, including the overhaul of the GST regime, under which the number of tax slabs will be reduced from the current four to two. The GST Council is set to meet next week to consider the proposal. "I think, in the month of September, after the new GST rates are announced, we will see a pick-up in consumption that has been held back," he said. Besides the expected GST relief, Nageswaran also said festive demand will boost domestic demand in the current and next quarters.

 

The tax changes come at a time when the government's revenues have slowed, with gross tax collections rising only 0.8% year-on-year in Apr-Jul, as against a budgeted growth of 10.8%. Many states have also flagged the potential shortfall in revenue from the proposed GST rejig. Despite the risks to fiscal deficit from lower revenue, Nageswaran said that having established the government's focus on fiscal deficit in the post-COVID-19 era, it "will be quite determined to ensure that there are no fiscal shortages in the coming years." The Budget for FY26 has projected a fiscal deficit of 4.4% of GDP. 

 

Acknowledging the rise in government bond yields, Nageswaran said that the government is "confident that once the market gets a sense of our continued commitment to risk-resilience and risk-severity while ensuring fiscal consolidation, we do believe that the long-term bond yield will return to lower levels that we saw before the recent spike." The yield on the 10-year benchmark 6.33%, 2035 gilt has risen about 37 bps since the Reserve Bank of India announced a 50-bps cut in repo rate.  End

 

Reported by Priyasmita Dutta

Edited by Saji George Titus

 

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