As US tariffs hit key export sectors, Nomura flags risks to growth, jobs, and investments while highlighting fiscal and monetary policy responses.
US Tariffs Prompt GDP Downgrade by Nomura
Nomura has slashed India’s FY26 GDP growth forecast to 5.8% in its worst-case scenario, from a prior estimate of 6.2%, amid ongoing tariff escalations from the United States. The downgrade reflects sharp export disruptions, labour market stress, and slower investment sentiment.
- In a base-case, if penalty tariffs are withdrawn after November 2025, GDP growth is expected at 6%, still lower than previous estimates.
- The revised outlook assumes 25% reciprocal tariffs will persist through FY26, while the harsher 50% penalty rates may be lifted after a few months.
“Weaker exports, labour spillovers, and investment uncertainty will more than offset the GST-related demand boost,” wrote Sonal Varma and Aurodeep Nandi of Nomura.
Sectoral Tariff Breakdown and Exposure
The US has imposed additional 25% penalty tariffs on top of existing 25% duties on Indian goods from August 27, pushing effective tariffs on ~60% of India’s exports to 50%.
Key details:
- Electronics, textiles, gems & jewellery, seafood, and household items are among the hardest hit.
- Semiconductors, energy, bullion, and pharma have so far avoided new tariffs.
- Finished autos and parts: 25%, steel, copper, aluminium: 50%.
GDP Channels of Impact
Nomura highlights three primary channels through which tariffs are expected to damage India’s economy:
- Direct Export Hit
- Key export categories (textiles, seafood, jewellery) face trade slowdown or near embargo conditions.
- Exporters in MSME segments lack financial resilience to survive a prolonged disruption.
- Employment Shock
- ~21 million workers are directly or indirectly employed in affected sectors, according to the Annual Survey of Industries (ASI).
- These sectors also support a large informal labour force, raising the risk of a wider income shock.
- Private Investment Delays
- Ongoing uncertainty could suppress private capex as business sentiment weakens in export-linked industries.
Shrimp, Textile, Leather Sectors Already Reacting
- Shrimp exporters have already seen double-digit stock declines, as global buyers re-evaluate pricing.
- Textiles and leather sectors—both major employment hubs—are under pricing pressure, facing cancellation of US orders.
Fiscal and Monetary Policy Outlook
Despite the external shock, Nomura believes the government can maintain its fiscal deficit target of 4.4% of GDP in FY26:
- Targeted support for exporters may cost less than 0.1% of GDP.
- Risks exist due to weak direct tax collections, frontloaded capex, and uncertainty around GST impact.
Inflation Forecast:
- FY26 CPI inflation held at 2.7%, with downside risks due to likely disinflation from weaker demand and GST cuts.
Monetary Policy:
- Nomura expects 25 bps rate cuts in both October and December, taking the repo rate to 5% by end-2025.
Role of GST in Offsetting the Blow
The firm remains positive on GST rationalisation in the medium term, though short-term distortions are expected:
- Demand may dip in Aug–Sep ahead of GST cuts, then spike in Oct–Nov, causing overall demand to stay balanced.
- However, GST gains may not be enough to counter export- and employment-led GDP drag.
India’s Exposure to the US Market
- The US is India’s largest export destination, contributing to nearly 20% of total goods exports—equivalent to about 2.2% of GDP.
- Any prolonged tariff regime may compel India to diversify markets, with analysts urging creative policy solutions and trade deal negotiations.
