Economists at Ernst and Young on Wednesday said that India’s average growth after factoring in the impact of US tariffs is expected to be around 6.4 per cent in the medium term, with suitable policies pushing domestic demand and diversifying exports to cushion the overall impact.
“Nearly 0.9 per cent of India’s GDP may be affected by the US tariffs. The actual impact may depend on the elasticity of demand for Indian exported goods in the US. Assuming that about one-third of the impact results in a fall in demand, the overall impact is estimated at 0.3 per cent of India’s GDP,” EY said in its August economy report.
The impact could be neutralised to an extent through counter measures such as reducing overall imports and boosting domestic demand for goods that are exported.
“With suitable policies, the US tariff impact can be reduced to about 0.1 per cent of GDP, implying, at best, a reduction of 10 basis points in India’s expected growth of 6.5 per cent in FY26. So, India’s average growth may be reduced at best to 6.4 per cent in the medium term on account of the US tariffs,” the report said.
“With appropriate counter measures, India can limit the adverse impact of higher US tariffs on selected Indian imports to about 10 basis points of real GDP growth. Such measures could include export diversification, reducing import dependence (particularly on the US), strengthening domestic consumption, and expanding the domestic production base,” said D.K. Srivastava, chief policy adviser, EY India.
Manoranjan Sharma, chief economist at Infomerics Ratings, said that the steep US tariffs offer an opportunity for India to broaden the manufacturing base, which is currently stuck at around 14 per cent of GDP, pushing aggressively into sunrise sectors.
PPP gap
The EY report also said that the size of the US economy in real PPP (purchasing power parity) terms in 2024 is $25.7 trillion, whereas that of India is $14.2 trillion in international dollars. By 2030, this difference of $11.5 trillion international dollars is projected to come down significantly, with the US and Indian economies growing to $28.9 and $20.7 trillion, respectively.
IMF provides GDP per capita measured in PPP terms at constant 2021 international dollars.