New Delhi, Mar 7 (KNN) The tariff war initiated by the United States is expected to disrupt global supply chains and adversely impact India’s exports, particularly in sectors including textiles, pharmaceuticals, and auto components, according to a recent CRISIL report.
Escalating trade tensions and increasing protectionist measures by the US pose significant headwinds for India’s export sector, potentially challenging the country’s economic stability.
Crisil’s India Outlook March 2025 indicates that India’s merchandise trade surplus with the US has been consistently growing, reaching USD 33.6 billion in 2023, which makes the country vulnerable to retaliatory tariff actions.
The report states, “India now faces potential challenges from US protectionist policies, which could result in higher duties on key export sectors.”
The ongoing tariff war is anticipated to intensify competitive pressures on domestic manufacturers. Higher tariffs on Chinese goods may redirect cheaper Chinese imports into the Indian market, potentially disrupting local businesses, particularly industries that directly compete with Chinese products.
Currency volatility remains a concern as trade uncertainties and geopolitical risks affect capital flows.
Crisil projects the Indian rupee to settle at 88 per US dollar by March 2026. The report further notes that capital outflows from emerging markets, including India, have intensified amid rising US protectionism.
India’s current account deficit is expected to increase moderately to 1.3 percent of GDP in fiscal 2026.
The report attributes this rise to higher goods imports and subdued export growth, which could exert additional pressure on the currency. However, a robust services trade surplus and steady remittance flows are expected to help contain the deficit.
Food inflation, which has been a persistent concern, is forecast to moderate to 4.4 percent in fiscal 2026, down from 4.9 percent in fiscal 2025. This projected decline is attributed to normal monsoon conditions, stable global food prices, and lower crude oil costs.
The report highlights that food inflation has intensified for three consecutive years, with its contribution to headline CPI rising to 66 percent in fiscal 2025 from 27 percent in fiscal 2022.
Overall inflation is expected to ease to 4.4 percent in fiscal 2026 from an estimated 4.7 percent in fiscal 2025, supporting the Reserve Bank of India’s potential monetary easing stance.
Crisil anticipates further repo rate cuts by the RBI’s Monetary Policy Committee in fiscal 2026, following a 25 basis points reduction in February 2025.
Despite global trade uncertainties, India’s economic growth is projected to remain steady at 6.5 percent in fiscal 2026, bolstered by domestic consumption and stable infrastructure investments.
The report states, “In fiscal 2026, growth will be supported by easing monetary policy and government measures to boost private consumption.”
The government has budgeted a 10.1 percent increase in capital expenditure, which is expected to provide additional economic support.
Government capital expenditure continues to be a crucial driver of economic stability, with the Centre allocating 3.1 percent of GDP for infrastructure investments.
While the government is normalising capital expenditure growth following an extraordinary post-pandemic push, it will remain supportive of economic growth due to multiplier effects.
Private sector investments need to increase to maintain long-term economic momentum. The Production Linked Incentive scheme allocation is budgeted to rise by 87 percent in fiscal 2026, focusing on electronics, textiles, automobiles, and components.
As India navigates through global economic turbulence, the strength of domestic demand, investment momentum, and monetary policy interventions will be critical in determining the country’s growth trajectory in fiscal 2026.
(KNN Bureau)
