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Informist, Thursday, Dec. 11, 2025

NEW DELHI – India and the US are expected to reach a trade deal soon that will lower US tariffs on Indian goods from 50% to 20%, in line with tariffs on goods from other South Asian competitors, according to Nomura. The reduced trade headwinds will help India achieve GDP growth of 7.5% in the year ending March and 7.1% in 2026-27, Nomura's said in a report. 

"In Q4 (Oct-Dec), the economy remains caught between GST rate cuts and 50% Trump tariffs, but with GDP deflator likely to move into negative territory, real GDP growth is likely to be elevated at 7.5%," Nomura said.

"We expect underlying growth to improve in 2026, due to the lagged effects of past policy easing, with GDP growth at 6.9%. We expect inflation at 3.6% in 2026, undershooting the RBI's 4.0% target for the second year in a row, and an additional 25bp (25 bps) rate cut to a 5.00% terminal rate," Nomura said. 

The RBI's Monetary Policy Committee, which on Friday cut the policy repo rate by 25 basis points to 5.25%, raised its GDP growth projection for FY26 to 7.3% from 6.8%, after the economy delivered a better-than-expected performance in the Jul-Sept quarter at 8.2%. 

"We expect a greater focus on policy transmission through more measures focused on liquidity injections. In our baseline, we expect an "on hold" policy rate decision in February (liquidity focus) and the next 25bp (25 bps) rate cut in April to reach a terminal repo rate of 5.00%," Nomura said. It also said the flexible inflation-targeting framework, which is up for review by March, is expected to remain largely unchanged. 

According to Nomura, the key upside risks to India's growth outlook include a faster-than-expected revival in private capital expenditure, US tariffs being reduced to 15% and sharply higher global growth. On the downside, the main risks include higher oil prices, monsoon-driven food price shocks, rising household indebtedness and weaker global growth. "The government is also set to introduce new series for GDP, inflation and industrial production next year, which could disrupt the forecasts," it said. 

Nomura sees India's share of global smartphone exports to continue rising and expects the government to broaden the production-linked incentive scheme to other low-tech manufacturing sectors such as toys, furniture, and footwear, as India becomes an important node in global value chains. "More deregulation reforms to improve the ease of doing business are also likely. A cyclical recovery in India's key export markets – the US and Europe – also bodes well for export demand." 

The US accounts for nearly 20% of India's total exports. In FY25, India exported goods worth $86.51 billion to the US, resulting in a trade surplus of $40.82 billion. As of October in the current financial year, the trade surplus with the US was $22.06 billion.

On the government's fiscal consolidation, Nomura said that despite slower revenue growth and higher expenditure this year, the fiscal deficit target of 4.4% of GDP in FY26 will be met. Nomura estimates a potential revenue undershoot of INR 1.3 trillion in FY26 and expects that to be covered by lower expenditure in Oct-Mar.

From FY27 onwards, the Centre has announced its intention to shift its fiscal consolidation benchmarking to the debt-to-GDP ratio. According to FY26 Budget documents, the government aims to keep the fiscal deficit so that central government debt declines as a percentage of GDP. It aims to reduce the Centre's debt to 50% of GDP, plus or minus 1%, by FY31, from 56.1% in FY26. 

According to Nomura, this appears achievable if the government keeps the fiscal deficit range-bound, but the absence of a firm deficit target has increased uncertainty. Nomura said it expects the government to generally follow the fiscal consolidation roadmap during the transition, perhaps more gradually, with the fiscal deficit likely to be set at 4.3% of GDP in FY27.  End

US$1 = INR 90.37

Reported by Priyasmita Dutta

Edited by Saji George Titus

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