Fitch Ratings has reported a significant surge in the effective tariff rate imposed by the United States on goods imported from India, escalating to 20.7% in 2025 from a mere 2.4% the previous year. This considerable increase raises concerns about its potential impact on India's economic expansion.

Several financial institutions have already begun to adjust their growth forecasts for India in light of these developments. Goldman Sachs has lowered its growth projections, and HDFC Bank anticipates a reduction in India's GDP growth. Moody's Ratings has also suggested that the increased tariffs could pose challenges for India's manufacturing sector.

Despite these concerns, the overall outlook for the Indian economy remains resilient. Fitch Ratings, while acknowledging the potential challenges, expects India's GDP growth to reach 6.3%. This projection is underpinned by robust infrastructure spending, which is expected to drive healthy demand for various sectors, including cement and building materials, electricity, petroleum products, steel, and engineering and construction.

Fitch anticipates that credit metrics for its rated Indian corporates will improve in the financial year ending March 2026. This improvement is attributed to wider EBITDA margins that are expected to offset the impact of high capital expenditure.

Regarding the impact of the US tariffs on Indian companies, Fitch expects a "limited direct impact" due to generally low to moderate US export exposure. However, the agency cautions about potential "second-order risks" arising from excess supply in some sectors. It also notes that an eventual India-US trade agreement could alter the outcomes, and companies are likely to explore export diversification to mitigate the tariff shock. India and the US are currently engaged in negotiations for a bilateral trade deal.

Fitch further cautioned that sectors like steel and chemicals may face pricing pressure due to excess global supply being redirected to India. Additionally, the metals and mining sector could experience higher price volatility due to emerging global growth risks.

Conversely, domestically focused sectors such as oil and gas upstream and downstream, cement and building materials, engineering and construction, telecom, and utilities are expected to see minimal direct effects, supported by local demand and/or regulatory frameworks.

The US administration's decision to impose a 25% tariff on Indian goods has been described as "unfortunate". However, some experts believe that this measure is likely to be short-lived, as both countries are actively working towards a Bilateral Trade Agreement (BTA). While the tariffs may have a short-term impact on export sectors like textiles, gems and jewellery, engineering goods, and FMCG products, government sources suggest that the overall impact on the Indian economy will be "negligible," estimating a 0.2% GDP hit.