US Tariffs Pose Risk, But Domestic Reforms Could Keep India’s Economy on Track

The festive season and proposed goods and services tax (GST) reforms are expected to support domestic demand in the coming quarters, Chief Economic Advisor (CEA) V. Anantha Nageswaran said on Friday.

Speaking after the release of the June quarter GDP data, which showed a stronger-than-expected 7.8% expansion, Nageswaran cautioned that short-term risks to economic activity remain, particularly for exports and capital formation, due to uncertainties from the additional 50% US tariff that came into effect on August 27.

Despite these challenges, domestic consumption is expected to remain robust enough to encourage private investment, he added. Growth for the current fiscal is projected to remain within the Economic Survey’s target band of 6.3-6.8%, with no revisions planned so far.

“The precise impact of the US tariff on the Indian economy is difficult to estimate at this stage,” Nageswaran said, adding that the government sees the tariff as an opportunity to push domestic reforms, deregulation, and diversify export markets.

India continues to be the fastest-growing major economy, widening its lead over peers. China recorded 5.2% growth in the June quarter, followed by Indonesia (5.1%), the US (2.1%), Japan and the UK (1.2% each), and France (0.7%).

A senior finance ministry official highlighted broad-based expansion in the June quarter, driven by manufacturing, construction, and services on the supply side. On the demand side, strong growth in private final consumption expenditure (7%) and gross fixed capital formation (7.8%) underpinned performance, while government capital expenditure also supported investment.

“High-frequency indicators for July suggest a continuation of the June quarter momentum,” Nageswaran said. He added that private consumption in the first three months of the fiscal reached its highest share of GDP for the same quarter in 15 years, reflecting strong macroeconomic fundamentals anchored by consumption and investment.

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