The US government’s move to cut tariffs on Indian goods is likely to benefit several sectors especially gems & jewellery, textiles, and marine products, which faced drop in exports to the US in the first eight months of this fiscal year.
Prime Minister Narendra Modi and US President Donald Trump announced that US tariffs on Indian goods would be lowered to 18% from 50%. While the US cut a 25% reciprocal tariff to 18%, it removed a 25% penal tariff for India’s purchases of Russian oil. The tariffs, imposed last August, came in the midst of negotiations between India and the US for a bilateral trade agreement (BTA). The US effective tariff rate on Indian goods has now dropped to 16.3% from 35.7%.
Exports to the US account for about 2% of India’s GDP. In FY25, India exported $86.5 billion worth of goods to the US while importing $45.7 billion. HDFC Bank estimates an upside of 20-30 bps to its FY27 growth forecast of 6.9%, while IDFC First Bank pegged the impact at 30-50 bps.
“This calculation incorporates the impact from reduced tariffs on growth, tariff in line with/or lower compared to peers, rupee depreciation of 7% (April 2025 to February 2, 2026), and an upward revision of US growth,” said Sakshi Gupta, principal economist at HDFC Bank.
Move likely to benefit gems & jewellery, textiles and marine products after export drop in first eight months of this financial year
Devendra Pant, chief economist at India Ratings and Research (Ind-Ra), said the tariffs imposed on India is now either lower than or in line with those faced by competitors. “This will allow the Indian exports to regain its competitive position similar to the regime prevailing before high tariffs were imposed,” he said. India has secured a more favourable tariff rate than several other competing exporting countries, including Vietnam (20%), Bangladesh (20%), Malaysia (19%), Indonesia (19%).Economists said India’s FY27 growth forecast remains provisional, pending further details of the US-India trade agreement and release of the new GDP series on February 27. The statistics ministry is revising the GDP base year to 2022-23 from the current 2011-12.
Most economists expect the Reserve Bank of India’s (RBI) monetary policy committee to keep the repo rate unchanged at 5.25% at its February 6 meeting, with confidence strengthened by the trade deal announcement.
Impact on Rupee/capital flows
“Easing trade uncertainties are likely to support a revival in foreign investment inflows, providing greater stability to the rupee,” said Rajani Sinha, chief economist at CareEdge Ratings.
She added that this could allow the RBI to scale back its foreign exchange interventions, which had intensified amid recent volatility.
Pant said movements in USD-INR would depend on capital flows, which are expected to improve following the tariff reduction. “The change in sentiments should be positive for USD/INR.”
The rupee strengthened about 1.5% against the dollar on Tuesday, compared with the day before, settling at 90.27.
HDFC Bank estimates USD/INR in the range of 90-92 for FY27, assuming a moderate pace of depreciation.
Gupta at HDFC Bank explained that the outlook factors in the possibility that the central bank may absorb dollar flows to manage its forward book maturity, estimated at $62 billion as of December- end, which can be higher if one includes the $20 billion swap for January and February, thereby limiting appreciation on the rupee.
Economists also cautioned that the forecasts could still change depending on the finer details of the trade agreement.