India is facing steep US import duties, yet analysts believe that the country’s faster-than-expected pace of GDP growth on the back of improving domestic demand could help cushion the tariff blow, according to a CNBC report.Following months of deliberations and high-level meetings to finalise a trade deal between India and the US, the additional 25% tariff hike imposed by the US on Indian exports came into effect on August 27, bringing the total levy to 50%.But, days later, the government data showed that India’s economy expanded by a robust 7.8% in the first quarter of FY26, continuing its upward growth trajectory and outpacing several major global economies. The strong performance was driven by buoyant services activity, resilient rural consumption, and rising investment, Chief Economic Adviser (CEA) V. Anantha Nageswaran said.
Goldman Sachs recently raised its real GDP growth projection by 60 basis points, forecasting 7.1% for 2025 and 6.7% for fiscal 2026. The revision factors in the anticipated drag from higher American tariffs, the article said.Also read: India’s services PMI hits 15-year high in August on strong demand, rising inflationFurthermore, reduced price pressures, an upcoming tax restructuring, and the festive spending cycle through Diwali would continue to support household consumption during the third quarter of 2025, OCBC Global Markets Research said.Even so, OCBC held its FY26 forecast at 6%. The World Bank and IMF see 6.3% and 6.4% growth, respectively.In August, the Prime Minister Narendra Modi announced a GST overhaul aimed at simplifying the current four-tier system into two slabs—5% and 18%. Most items are expected to fall into the lower bracket, potentially encouraging spending.Even the monetary policy has turned supportive. The Reserve Bank (RBI) in June cut benchmark interest rates by 50 basis points, bringing the total rate cut this year to 100 basis points. With another reduction anticipated later in the year, cheaper borrowing could further lift consumption, the report said.CRISIL, part of S&P Global, said in a September 1 report that rural incomes, low inflation, easier rates, and tax relief would sustain consumer demand. It also pointed to government capital expenditure as a buffer against tariffs, slowing trade, and geopolitical risks.Healthy farm output could also help control food prices, citing an above-average monsoon and a 3.4% increase in sowing during the June–September period compared with last year, according to CRISIL.Currency concerns growBut the rupee concerns appear to be back on the horizon. On August 29, the rupee hit a record closing low of ₹88.3 per US dollar and has remained near that level. “It’s not catastrophic, but prolonged global uncertainty could push the exchange rate toward 89–89.5, especially if oil rises further,” said Ashhish Vaidya, managing director and treasury head at a Mumbai-based bank.Moreover, foreign portfolio investors have sold nearly $4 billion in Indian equities during August and $16 billion so far this year, intensifying pressure on the currency. As an import-heavy country, a weaker rupee could raise the overall bill and widen the trade deficit.Also read: Four reasons why the rupee crashed to a fresh all-time low todayMeanwhile, revenue shortfalls from tax cuts and a pricier import tab pose risks to fiscal consolidation. Any slippage from the government’s 4.4% deficit target could add more pressure on the rupee, the report added.Goldman Sachs warned that India’s currency is likely to underperform compared with regional peers, given tariff challenges, soft portfolio inflows, and the central bank’s ongoing need to manage its forward book.
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