Trade tensions: India GDP may fall below 6.2% in FY26 if US tariff stays; S&P flags agriculture, Russia hurdles
The ratings agency had earlier projected India's GDP at 6.2% for FY26, already a decline from 6.5% in FY25, and said the forecast could be revised further downward if tariff barriers persist.
'This projection is likely to be adjusted downward if the 25% tariff is implemented. Its application would leave India relatively disadvantaged versus regional competitors that have secured a lower tariff rate,' the S&P report said, as quoted ANI.
According to the report, India's refusal to offer market access to US agriculture and dairy products remains a key sticking point preventing a bilateral trade agreement. Farmers, being a significant electoral constituency, are central to New Delhi's reluctance to open up these sectors, S&P noted.
'India is highly reluctant to offer market access for the US in the agriculture and dairy products sectors, making it difficult for India to reduce its tariffs on US exports of soy, corn, wheat and rice,' the report said.
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The report also flagged concerns over India's exposure to Section 232 'national security' tariffs on exports such as electronics and pharmaceuticals. These two categories account for 12.3% and 17.8% of Indian exports to the US, respectively. Unlike EU nations that have received exemptions or reduced tariff rates on these products, Indian exporters may face a competitive disadvantage unless similar terms are negotiated.
S&P further cited India's continued imports of Russian oil and defence equipment as additional complications in the ongoing negotiations. While India may be open to increasing imports of US crude oil, it would resist doing so solely in response to US demands. However, the report said India is more likely to boost imports of US liquefied natural gas (LNG), given domestic demand growth and rising American capacity.
The US recorded a trade deficit of $45.7 billion with India in 2024. Trump has threatened to impose penalties on Indian imports over its trade with Russia, although details are yet to be clarified.
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