Indian officials optimistic of US tariff breakthrough

THither is “ restrained optimism” that the US testament eventually convey land the 50% tariff on exports from India, a senior official in New Delhi has said, citing the visit by an American trade negotiating team led by Brendan Lynch that concluded on Wednesday night and sustained diplomatic signals from President Donald Trump, including his birthday call to Prime Minister Narendra Modi.“It’s not just the birthday call that made Prime Minister Narendra Modi refer to taking the relationship to ‘new heights’ in a post on X. It’s also other signs like the reiteration the very next day in UK,” the official said, adding that a strategy developed several weeks ago — which includes avoiding “noisy” confrontation while remaining steadfast on “red lines” — appears to be yielding results.Trump said he was “very close to India, very close to Modi” during an event in the UK on Thursday.The optimism is bolstered by government assessments suggesting the economic impact will be more manageable than some external projections, particularly those from trade groups.“For the financial year 2025-26, the loss to GDP growth won’t be more than 0.5 percentage point because it’s only come in now after half the year is over. The 0.8 percentage point loss comes in if it’s more permanent, when countries who could have looked at setting up factories here, overlook us and go elsewhere. That’s a more dynamic loss on growth,” this person added.The assessment contrasts with estimates by the Global Trade Research Initiative (GTRI), which estimated the tariff regime could impact GDP growth by almost 1%, dropping it from 6.5% to 5.6%. However, the government believes such projections would only apply if the tariff structure and penalty for Russian oil purchases extend beyond a couple of years.Forecasts by other economists are more in line with government’s estimates. Nomura, for instance, cutting its India FY26 GDP growth forecast from 6.2% to 5.8% — a drop of 0.4 percentage point -- in a “worst case” scenario if 50% tariffs persist for the full year.The RBI, in its last monetary policy review in early August, maintained its FY2025-26 growth forecast at 6.5% but has cautioning that US tariffs pose “significant risks to the growth outlook.”The government has prepared a ₹10,000 crore package to provide a buffer against the new tariff regime but, the official cited above added, a rollout timeline has not been decided yet since there is hope of a breakthrough that would eliminate the need for intervention.HT reported about the export boost plan to offset the blow to the sector due to the American tariffs on Tuesday. The package reflects recognition that while the tariffs are “a setback,” they are “not catastrophic,” according to the senior official.The 50% tariff regime comprises a 25% reciprocal tariff and an additional 25% penalty specifically for Russian oil purchases, affecting an estimated 55% of India’s $87 billion merchandise exports to the US, the government told parliament last month. Key sectors facing the full tariff burden include textiles, pharmaceuticals, engineering goods, and gems and jewellery.However, certain critical sectors and products remain exempt or face lower rates, limiting the overall economic impact and providing the government confidence that disruptions can be managed through existing domestic demand.New Delhi has adopted what the official cited above described as a carefully calibrated approach of “neither provoking, nor complying” with US pressure.“We are coming at it from a position of quiet strength instead of noisy disputation,” the official explained, contrasting India’s approach with more confrontational responses by other nations.Officials have indicated that India maintains clear “red lines” on sovereignty issues, particularly regarding US demands on sourcing oil from Russia, which they characterised as non-negotiable.The official highlighted persistent challenges in the process of negotiating a bilateral trade agreement (BTA) with the Trump administration’s trade team, noting that “often the US trade representatives have gone back to the White House and said that there’s no-go on certain agreements.”In contrast, the Indian team, led by special secretary, commerce, Rajesh Agrawal, follows “a very clear protocol on trade negotiations” — Agrawal receives input from relevant departments including the agriculture ministry and operates with final clearance from “competent authority” regarding limits on accommodating US demands and no-go areas, the official explained.Despite continuing threats from Trump administration officials, including trade adviser Peter Navarro, Indian officials remain hopeful about eventual resolution.The official noted Trump’s month-long silence on claims about mediating “Operation Sindoor” — a stance India has categorically refuted --- and other positive signals as evidence that the relationship trajectory may be improving.