UNDESA Sees India Growing 7.2% In FY26 Despite Higher US Tariffs

New Delhi, Jan 9 (KNN) India is expected to grow by 7.2 percent in the financial year 2025–26, with resilient domestic consumption and strong public investment likely to ‘largely offset’ the impact of higher tariffs imposed by the United States, according to a report by the United Nations Department of Economic and Social Affairs (UNDESA).

Growth Outlook and Forecasts

The projection is part of UNDESA’s World Economic Situation and Prospects 2026 report and is marginally lower than the 7.4 percent growth estimate projected by the Indian government in its First Advance Estimates of GDP for 2025–26 released earlier this week.

The UN body had estimated India’s growth at 7.4 percent in calendar year 2025. On a fiscal-year basis, the report forecasts growth of 6.6 percent in 2026–27 and 6.8 percent in 2027–28, reported The Hindu.

Consumption, Public Investment to Cushion Tariff Impact

UNDESA noted that India’s growth in the near term will be supported by resilient consumption and strong public investment, which are expected to largely offset the adverse impact of higher U.S. tariffs. 

Recent tax reforms and monetary easing measures are also expected to provide additional short-term support.

The report also cautioned that U.S. tariffs could begin to weigh on India’s economy if they persist, particularly affecting export performance from 2026 onwards. The United States accounts for around 18 percent of India’s total exports, it noted.

While some product categories may face pressure due to tariffs, the report pointed out that key exports such as electronics and smartphones are expected to remain exempt. 

Additionally, strong demand from other major markets, including Europe and the Middle East, is projected to partially offset the tariff impact.

Manufacturing, Services and Investment Trends

On the supply side, the report said continued expansion in manufacturing and services will remain key drivers of growth throughout the forecast period.

Highlighting divergent investment trends among developing economies in 2025, UNDESA noted that India recorded strong growth in gross fixed capital formation, driven by higher public spending on physical and digital infrastructure, defence, and renewable energy. 

In comparison, China witnessed a contraction in fixed asset investment during the first three quarters of 2025 due to persistent weakness in its property sector.

Rupee Movement and External Sector

The report said the Indian rupee stabilised against the U.S. dollar in the first half of 2025, supported by broad dollar weakness. However, it edged lower in the second half amid stronger-than-expected U.S. growth, ongoing trade negotiations, portfolio outflows, and higher U.S. tariffs.

Despite these pressures, UNDESA noted that India’s robust economic performance is expected to support the currency in the near term.

Exchange Rate Competitiveness

According to the report, India’s real effective exchange rate (REER) improved to 100.9 in 2025, compared with 104.7 in 2024. A rise in the REER index indicates a decline in competitiveness, while a fall suggests improved competitiveness.

(KNN Bureau)