Following the recent US tariff cut on Indian goods, Goldman Sachs has revised India's growth forecast for Calendar Year 2026 upwards to 6.9%. This adjustment reflects the anticipated benefits of reduced trade friction between the two nations.
The US decision involves lowering the reciprocal tariffs on Indian goods from 25% to 18%, a move that has been implemented immediately. According to Goldman Sachs, this reduction is expected to provide a "modest but meaningful" stimulus to India's economy. The revised tariff rate aligns India with most other Asian economies, which typically face US tariff rates in the 15-19% range, thereby easing competitive pressures on Indian exporters.
Analysts estimate that the tariff reduction could add approximately 0.2 percentage points to India's annual GDP growth. This projection considers India's goods exports exposure to US final demand, which is around 4% of GDP, and assumes an export demand elasticity of roughly 0.7.
Beyond the immediate impact on trade flows, the tariff cut is expected to boost corporate confidence and encourage private capital expenditure. Goldman Sachs suggests that the reduced uncertainty in trade policy could lead to increased investment activity, particularly in the latter half of 2026.
The report by Goldman Sachs also highlights potential benefits on India's external front. With lower tariffs, the current account deficit is projected to narrow by approximately 0.25% of GDP in CY26, bringing it down to around 0.8% of GDP. Furthermore, the easing of trade tensions could revive capital inflows, potentially reducing pressure on the Indian rupee amidst global volatility.
Other brokerages and economists echo the sentiment that this deal carries significant implications for capital flows and financial markets. Market participants note that the composite tariff on Indian goods has fallen from 50% to 18%, positioning India among the least-tariffed exporting nations to the US. While some advanced economies like the EU, UK, Japan, and South Korea face lower tariffs, their value-chain positioning limits direct competition with India. In contrast, several large emerging market competitors, including China, Vietnam, Brazil, and Thailand, now face higher tariffs than India, strengthening India's relative trade position.
BofA Securities estimates that the effective tariff rate on India could decrease to around 12-13%, even after accounting for Section 232 tariffs on products like steel, aluminum, and automobiles. This reduction is expected to provide substantial relief to India's export sector, especially for labor-intensive segments such as gems and jewelry, textiles, agricultural products, and engineering goods.
Santanu Sengupta, Global Banking & Board Leader and former MD at Wells Fargo, views the trade agreement as a shift towards a strategic economic partnership between India and the US. He emphasizes the opportunities for improved market access, technology collaboration, and deeper integration into resilient global supply chains, particularly for MSMEs, manufacturing, and high-value services.
The Reserve Bank of India (RBI) is expected to maintain stable interest rates at its upcoming policy meeting, citing improved growth certainty and reduced trade-related risks following the US tariff rollback.
Overall, the reduction in US tariffs on Indian goods is poised to reinvigorate India's export growth to its largest goods export destination, which accounted for nearly 21% of total goods exports during the first eleven months of 2025. Sectors like electronics, pharmaceuticals, textiles, and chemicals are expected to benefit the most, with additional support coming from increased energy imports from the US.