The tariff war initiated by the US is likely to disrupt global supply chains and impact India’s exports, particularly in sectors such as textiles, pharmaceuticals, and auto components, according to a Crisil report. The evolving trade tensions and increasing protectionism by the US could create headwinds for India’s export sector, posing a fresh challenge to economic stability, the rating agency said.
The report highlights that India’s merchandise trade surplus with the US has been steadily increasing, reaching $33.6 billion in 2023, making it vulnerable to retaliatory tariff actions. “India now faces potential challenges from US protectionist policies, which could result in higher duties on key export sectors,” Crisil’s India Outlook March 2025 stated.
The tariff war is also expected to increase competitive pressure on domestic manufacturers, as higher tariffs on Chinese goods may lead to an influx of cheaper Chinese imports into India. This could disrupt Indian businesses, particularly in industries that directly compete with Chinese products.
The Indian rupee is expected to remain volatile as trade uncertainties and geopolitical risks weigh on capital flows. According to Crisil, the rupee is projected to settle at 88 per US dollar by March 2026.
“India’s current account deficit (CAD) is expected to rise mildly to 1.3 percent of GDP in fiscal 2026,” the report stated, adding that higher goods imports and subdued export growth could put further pressure on the currency. However, it noted that a strong services trade surplus and steady remittance flows would help contain the deficit.
The report also warned that capital outflows from emerging markets, including India, have intensified amid rising US protectionism. “With the rupee coming under pressure in fiscal 2025, we compare the hit with one of the previous prominent periods of rupee depreciation during fiscal 2014,” Crisil noted.
“In fiscal 2026, growth will be supported by easing monetary policy and government measures to boost private consumption. The budgeted 10.1 percent increase in government capital expenditure (capex) will also be supportive,” the report stated. However, it warned that the risks to growth remain tilted to the downside, given the escalating tariff war and its potential impact on trade and investments.
The report underscored that government capex remains a crucial driver of economic stability, with the Centre budgeting 3.1 percent of GDP for infrastructure investments. “Although the government is normalising capex growth after an extraordinary push post-pandemic, it will remain growth-supportive due to multiplier effects,” Crisil said.
Private sector investments, however, need to step up to sustain long-term economic momentum. The Production Linked Incentive (PLI) scheme allocation is budgeted to rise by 87 percent in fiscal 2026, with a focus on electronics, textiles, automobiles, and components.
As India steers through the global economic turbulence, the report emphasised that the strength of domestic demand, investment momentum, and monetary policy interventions will be critical in determining its growth trajectory in fiscal 2026.
Food inflation, which has been a persistent concern, is expected to moderate to 4.4 percent in fiscal 2026, down from 4.9 percent in fiscal 2025. The projected decline is attributed to normal monsoon, stable global food prices, and lower crude oil costs, the report noted.
