India Seen Growing 7.2% in FY26 Despite US Tariff Pressures

India is projected to record robust economic growth of 7.2 per cent in the financial year 2025–26, with strong domestic consumption and public investment expected to largely offset the impact of higher tariffs imposed by the United States, according to a new United Nations report.

UNDESA Growth Projections for India

The forecast was released by the United Nations Department of Economic and Social Affairs in its World Economic Situation and Prospects 2026 report. The estimate is marginally lower than the 7.4 per cent growth projected by the Government of India in its First Advance Estimates of GDP for 2025–26. On a fiscal year basis, the UN body expects India to grow at 6.6 per cent in 2026–27 and 6.8 per cent in 2027–28.

Role of Consumption and Public Investment

According to the report, resilient household consumption and sustained public investment will remain the primary growth drivers. Recent tax reforms and monetary easing are expected to provide additional short-term support. On the supply side, continued expansion in manufacturing and services is projected to underpin growth throughout the forecast period. India has also recorded strong growth in gross fixed capital formation, led by public spending on physical and digital infrastructure, defence, and renewable energy.

Impact of US Tariffs on Exports

The report cautioned that persistently high United States tariffs could weigh on India’s export performance in 2026, as the US accounts for around 18 per cent of India’s total exports. However, it noted that key export segments such as electronics and smartphones are likely to remain exempt. Strong demand from other markets, including Europe and the Middle East, is expected to partially offset tariff-related pressures.

Imporatnt Facts for Exams

• UNDESA publishes the World Economic Situation and Prospects report.
• India’s projected FY26 growth rate is 7.2 per cent.
• The US accounts for about 18 per cent of India’s total exports.
• Gross fixed capital formation reflects investment in physical assets.

Currency Trends and External Sector Outlook

The report noted that the Indian rupee stabilised against the US dollar in the first half of 2025 due to broad dollar weakness, before edging lower later amid strong US growth and trade uncertainties. Portfolio outflows and higher tariffs added depreciation pressures, though India’s strong economic performance is expected to support the currency. India’s real effective exchange rate improved to 100.9 in 2025 from 104.7 in 2024, indicating a relative gain in external competitiveness.