India's Economic Fortitude: Weathering Tariff Turbulence

In light of the increased tariffs imposed by the United States, India is poised to continue attracting foreign direct investments (FDI), bolstered by its strong domestic economic fundamentals. Sonal Badhan, an Economics Specialist at Bank of Baroda, expressed confidence that while tariff changes might affect export-oriented sectors, the overall investor sentiment will remain stable.

Badhan emphasized that foreign portfolio investments and FDI inflows will see limited effects due to strong domestic consumption trends. Although the tariffs could pose challenges, particularly to export-driven businesses, India's robust domestic market is expected to cushion any potential blows. Services exports, unaffected by tariffs, are anticipated to stabilize the current account deficit (CAD).

On fiscal policy, Badhan mentioned that domestic consumption stimulus measures could affect fiscal deficits but deemed the probability of such actions low unless trade tensions escalate without a resolution. She also indicated that the Reserve Bank of India might reconsider its monetary policy stance if significant tariffs on pharmaceuticals or semiconductors are imposed. GDP growth projections for FY26 could also be marginally affected, contingent on final tariff rates.

(With inputs from agencies.)