CEA Nageswaran downplays US tariff shock, banks on GST cuts and festive demand

V. Anantha Nageswaran, Chief Economic Advisor
| Photo Credit:
BIJOY GHOSH

Chief Economic Advisor V Anantha Nageswaran on Friday expressed confidence that impact of 50 per cent tariff by Trump Administration will be short-lived and there will a resolution soon. He also hoped that GST rate cut will boost the domestic demand.

“While there is some uncertainty due to tariff related concerns but in general conversations are going on and we see some kind of a resolution in the not so different future,” Nageswaran said in media briefing to share government’s perspective on April-June quarter economic growth number of 7.8 per cent.

Fifty per cent tariff has come into impact from August 27 and likely to have impact on sectors such as textiles, gems & jewellery and marine products beside other. “We are using this opportunity to look at domestic reforms, deregulation, GST rate rationalisation,” he said while clarifying that It’s difficult to calculate the precise impact of the US tariff on growth at this point

New strategy

He also said that the domestic industry is working to negate some impact. “The industry has planned its strategy, and made plans to absorb some portion of the additional tariffs, specifically the gems and jewellery sector,” he added. In the CEA’s assessment, the additional tariffs are expected to be ‘short-lived’.

He hoped that aggregate demand growth should hold up in the coming quarters as GST rate cut is on the cards and festive demand will drive consumption. Also, the growth target for FY26 will be retained as of now between 6.3-6.8 per cent, as the proposed GST reforms are likely to strengthen consumption. “The domestic demand is expected to strengthen in coming quarters, with the onset of festive period and GST rate changes,” Chief Economic Advisor added.

The recent RBI rate cut is expected to reduce borrowing costs and boost consumption and investment, said the CEA, sounding confident of a strong festive season. “The domestic demand situation is becoming clear, and will offset trade uncertainty to a large extent. That will drive investments by private sector and industry has shown their optimism for the same,” CEA added.

He stressed that the government is committed to fiscal prudence for financial year 2026. The statement assumes significance as it comes ahead of the planned tax slab cuts under the GST regime. Nageswaran said that the government has brought down fiscal deficit despite the challenging conditions. According to him, the effect of direct and indirect tax benefits will ensure strong demand and offset some impact from external uncertainty.

Meanwhile, sources in the Finance Ministry said that headline growth number reflects strengthening momentum in the economy, anchored by strong macroeconomic fundamentals. The High Frequency Indicators had been green-signalling the potentially higher numbers.

As you can see, supply-side growth was driven by manufacturing, construction, and services, reflecting an all-round growth. On the demand side, robust expansion in PFCE (7 per cent) and GFCF (7.8 per cent) underpinned performance. The PFCE’s share in GDP rose to 60.3 per cent, the highest first-quarter level in 15 years. “The government’s capital expenditure also sustained the momentum in GFCF’s growth,” a source said.

Pointers

Outlook for Indian Economy

–         High-frequency indicators for July 2025 indicate a carry-forward of Q1 economic momentum.

–         Domestic demand is expected to strengthen in the upcoming quarters with the onset of the festive period and forthcoming GST rate changes.

–         Higher kharif sowing supported by above-normal rainfall, comfortable buffer stocks and better output prospects for agriculture are expected to keep the food inflation benign.

–         India’s strong fundamentals earned a sovereign rating upgrade by S&P to BBB,  a well-deserved recognition of robust macro performance.

–         However, near-term risks to economic activity, principally exports and capital formation, remain due to tariff-related uncertainties.

–         Recent policy steps — Task Force for Next-Gen Reforms, forthcoming GST changes, State deregulation & easing interest rates —are expected to reduce borrowing costs, attract capital & boost consumption and investment. No revision is proposed to the growth forecast of 6.3% – 6.8% as of now.  

Published on August 29, 2025