India may soon gain some respite from trade tensions with the United States, as a potential interim bilateral trade agreement appears to be within reach. According to the Ministry of Finance’s Monthly Economic Review released on Tuesday, New Delhi is negotiating for a full exemption from the 26 per cent reciprocal tariff recently imposed by the US.
Although the additional tariff, which was announced on April 2, is currently suspended for 90 days until July 9, the baseline 10 per cent tariff remains intact. Officials are optimistic that an agreement could be finalised before July 8, reported PTI.
The report emphasised that a successful trade pact between the two countries could significantly alter India’s export landscape. “A successful US-India bilateral trade agreement could flip current headwinds into tailwinds, opening up new market access and energising exports,” it stated. The potential deal is expected to open doors for Indian goods and improve export momentum, even as the global trade environment remains uncertain.
Macroeconomic Strength Bolsters Investment Potential
Despite turbulence in the global economy, India continues to exhibit resilience and remains a top destination for investment, the report noted. “Foreign direct investors are likely to respond positively to policies that strengthen the country’s medium-term growth prospects,” the review stated, highlighting the importance of skill enhancement and productivity improvement among India’s young population. Such initiatives, it argued, would support a sustainable cycle of investment and economic expansion.
India’s economic performance remains strong by global standards. The International Monetary Fund’s World Economic Outlook from April 2025 projects a real GDP growth of 6.2 per cent for 2025-26, marking only a minor downward revision of 30 basis points from the previous forecast in January. These adjustments stem largely from heightened global uncertainties and escalating trade frictions. Other estimates from multiple agencies place India’s FY26 growth between 6.3 per cent and 6.7 per cent, driven by sound domestic fundamentals, government capital spending, and easing inflation.
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Domestic Demand and Government Spending Lead Growth Momentum
The finance ministry underscored the robust nature of India’s domestic economy as of April 2025. Strong private consumption, particularly in rural areas, and steady growth in services exports are sustaining economic momentum. The services sector has helped balance out the decline in merchandise exports, while the Indian rupee’s relative stability and the country’s ample foreign exchange reserves continue to shield the economy from external shocks.
The report credited government capital expenditure with playing a “pivotal role” in bolstering economic activity. Fiscal initiatives such as direct tax exemptions, alongside accommodative measures from the Reserve Bank of India, are expected to further stimulate demand and investment. The cumulative effect of these interventions could push growth closer to the upper range of projections, between 6.3 per cent and 6.8 per cent, as outlined in the latest Economic Survey.
“This may be no moment for self-congratulation but, equally, it is a moment to remember one’s strengths and leverage them to make oneself not just attractive but also indispensable to investors,” the report advised. However, it also cautioned that private sector investments may remain subdued in the near term due to ongoing global uncertainty and tighter financial conditions.
Inflation Outlook Favourable Amid Positive Agricultural Trends
On the inflation front, the outlook remains positive. The ministry noted that low core inflation, combined with falling food prices is helping ease overall inflationary pressure. Looking ahead, the report suggested that food-related inflation will likely stay low due to a strong rabi harvest, expansion in the sowing of summer crops, and a sufficient buffer stock of foodgrains.
Additionally, forecasts of above-normal monsoon rainfall by the India Meteorological Department, along with a reduction in global crude oil prices, are expected to reinforce the current disinflationary trend. Together, these developments point to a stable inflation environment that supports continued economic recovery.
