Nomura has warned that India’s GDP growth could fall to 6% in FY26 if trade talks with the US fail and the recently US imposed 25% tariffs on Indian exports remain unchanged. With key sectors like pharmaceuticals at risk and the US accounting for 18% of India’s exports, the brokerage expects government support for SMEs and a softer inflation outlook. Meanwhile, other nations have secured lower tariffs, adding pressure on India to reach a favorable deal.
US Tariffs on Indian Exports Threaten Growth
Nomura has flagged serious concerns over India’s economic outlook following the US’ decision to impose a 25% tariff on Indian exports. The brokerage estimates that if further trade negotiations fail and these elevated tariffs remain in place, India’s GDP growth could take a hit of up to 0.2% points. In simple terms, India’s GDP growth could decline by as much as 6% in FY26 if no resolution is reached with the US to bring tariffs down.
As talks between the two countries continue, Nomura believes India may consider limited concessions in sectors like automobiles while maintaining a firm stance on more sensitive areas such as agriculture and dairy. To mitigate risks in the medium term, India is expected to explore diversification of its export destinations by strengthening trade ties with partners such as the United Kingdom, the European Union, New Zealand, and Chile—markets where formal trade agreements have been signed or are currently under negotiation. However, this pivot won’t be easy in the short run, considering that the US accounts for approximately 18% of India’s total exports.
Sectors at Risk: India’s Pharma Exports Under Pressure
One of the most vulnerable sectors under the current tariff regime is pharmaceuticals. India’s total pharma exports in 2024 stood at US$ 8.86 billion (ITC, Trademap), a significant share of which is directed to the US. A 25% tariff could undercut the sector’s competitiveness, affecting both volumes and margins.
US Tariff Comparison: India vs. Peers
Adding to India’s challenges is the fact that several other countries have managed to negotiate lower tariff rates with Washington. Vietnam agreed to a 20% rate, Indonesia to 19%, and both Japan and the EU secured levies of just 15%. In a development that may intensify regional economic rivalry, Trump announced on Wednesday that the US has reached a trade deal with Pakistan, which Islamabad claims will reduce tariffs on its exports—although the exact rate has not yet been disclosed. The graph below comparing these tariff rates highlights how India’s exporters may find themselves at a disadvantage.
If the US tariffs on Indian Exports are implemented at the proposed rate, Nomura expects the Indian government to step in with a support package for small and medium exporters (SMEs). This assistance could come in the form of export credits, interest subvention, enhanced bank credit, or additional export incentives. A portion of the financial burden is also likely to be shared by banks.
Inflation & RBI Outlook for FY26
On the macroeconomic front, Nomura projects inflation to ease below the 3% mark, forecasting a 2.8% inflation rate for FY26 compared to the Reserve Bank of India’s estimate of 3.7%. Following a 50-basis-point cut in the repo rate in June, the RBI shifted its stance to neutral. Nomura continues to expect a 25-basis-point rate cut in both October and December. Although the June cut had lowered expectations for August to just 10 bps, recent developments have led Nomura to revise its projection upward to 35 bps, reflecting the growing urgency to support growth in the face of external headwinds.
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