New Delhi — India's Chief Economic Adviser V. Anantha Nageswaran has projected that the country's economy could expand to 7.4 percent in the coming fiscal year if the newly announced India-US tariff deal materializes into stronger exports and increased investment. This estimate significantly surpasses the government's earlier forecast of 6.8-7. 2 percent growth, signaling optimistic prospects for Asia's third-largest economy.
The tariff reduction marks a watershed moment for India-US bilateral relations. The United States has slashed effective tariffs on Indian goods from 50 percent down to 18 percent, eliminating the punitive 25 percent duty imposed in August 2025 over India's Russian oil purchases.
This move restores competitive pricing for Indian exporters in the crucial American market.
Key Facts
• US tariffs on Indian exports cut from 50% to 18% as of February 3, 2026, removing $500 billion in potential buying commitments for US energy, coal, technology, and agricultural products
• India now enjoys more favorable tariff rates than regional competitors Vietnam (20%) and Bangladesh (20%), though falling short of GSP preferences rivals receive
• Manufacturing sectors including textiles, apparel, pharmaceuticals, engineering goods, and leather products positioned for immediate export growth and renewed US market orders
The tariff rollback directly addresses what Indian business leaders describe as a lingering "tariff overhang" that had suppressed export confidence and delayed investment decisions. Companies operating manufacturing facilities in India can now plan medium-term capacity expansion with greater certainty regarding US market access.
Exporters from sectors like rice, marine products, textiles, and engineering goods have already welcomed the relief from punitive tariff regimes. Industry bodies anticipate renewed demand waves from American retailers and distributors who had postponed purchase orders due to uncertainty.
Macroeconomic implications extend beyond trade volumes alone. Banks and financial institutions expect healthier corporate balance sheets translating into stronger demand for working capital financing.
The improved sentiment could attract foreign direct investment into manufacturing and technology sectors that India aims to scale.
Multinational corporations with India-based manufacturing and sourcing operations gain three immediate advantages from this agreement. Reduced tariff risk improves margin visibility on US-bound shipments, greater policy certainty supports long-term capacity planning, and improved investor sentiment could lower financing costs for expansion projects.
The agreement requires India to reduce tariffs and non-tariff barriers on US goods, with government and large-scale industrial procurements shifting toward American suppliers. This "Buy American" commitment demonstrates India's willingness to rebalance bilateral trade flows while securing market access gains.
Geopolitical dimensions underpin the commercial breakthrough. India has reportedly committed to significantly reducing Russian crude oil imports and pivoting energy purchases toward the United States and potentially Venezuela.
This strategic realignment strengthens India's positioning within US-led global supply chains amid ongoing US-China tensions.
The announcement has energized Indian equity markets, with benchmark indices rising as trade uncertainty eased and investor confidence strengthened. Export-oriented and manufacturing-linked stocks saw particular upside as analysts reassess growth trajectories and corporate earnings potential.
Anish Shah, Group Chief Executive of Mahindra Group, captured industry sentiment:
While detailed tariff schedules and product coverage lists remain under finalization, industry experts emphasize that full implementation hinges on executive orders, cabinet approvals, and regulatory mechanisms. Continued consultations between Indian and US trade negotiators are expected in coming months to operationalize specific commitments.
Do You Know?
India's crude oil import dependence surged to 88. 2 percent in FY25 compared to 87.
4 percent during FY24. The US tariff deal creates potential for diversified energy sourcing patterns and opens possibilities for increased American oil, coal, and liquified natural gas shipments to Indian refineries and power plants.
Key Terms
• Reciprocal Tariff: A standardized import duty rate applied uniformly to goods from specific trading partners, replacing product-by-product variations
• Punitive Tariff: Extra duties imposed on imports from countries deemed to have unfair trade practices, often used as economic pressure
• Non-Tariff Barriers: Government policies like quality standards, labeling requirements, or licensing rules that restrict imports without explicit tariffs
• Make in India: Government initiative promoting domestic manufacturing competitiveness through incentives and infrastructure development
• FDI (Foreign Direct Investment): Capital invested by international companies in Indian businesses, facilities, and manufacturing operations
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