The India-US trade deal that has brought down US tariffs on India from 50% to 18% could mean that the effective tariff rate on Indian products could fall to as low as 12%, considering the concessions on electronics, pharmaceuticals and food items such as spice, coffee and tea, according to an analysis.
The deal, which comes into effect immediately, could also arrest the foreign portfolio investment outflows that were exerting pressure on the domestic currency.
“Accounting for section 232 tariffs on all products like steel, aluminum and automobiles staying in place, we estimate the effective tariff rate on India might be just around 12-13 per cent as per our estimates, down from almost 30-35 per cent previously. This would provide significant relief to India’s export sector, especially labour-intensive areas such as gems & jewellery, textiles, agricultural products and engineering goods,” Bank of America (BofA) Securities said.
BofA Securities said it expects to see reasonable growth in high-frequency indicators, and GDP growth to benefit further from this trade breakthrough.
Goldman Sachs also raised the current year’s (CY26) real GDP growth forecast by 20 basis points to 6.9% year-on-year (y-o-y). One basis point is one-hundredth of a percentage point.
Pressure on the rupee
The biggest stress points, however, came in the form of outflows that exerted pressure on the rupee.
The high tariffs meant that other destinations, particularly South East Asian countries, began looking more attractive for investment. Elevated uncertainty around the India-US trade deal kept capital flows muted in CY25 amid an earnings slowdown, with Indian equity markets seeing around $19 billion of foreign portfolio outflows.
“With the ‘reciprocal’ tariffs on India’s exports to the US now lowered, we estimate the current account deficit to narrow by around 0.25 per cent of GDP in CY26 to 0.8 per cent of GDP (GSe). In addition, if capital flows recover in CY26 on the conclusion of the India-US trade deal, which would ease some pressure on the INR, and result in downside risk to our current USD/INR 12-month forecast of 94,” Goldman Sachs Research showed.
The Economic Survey had also pointed out that the stability of the Indian rupee becomes a casualty as India’s net trade surplus in services and remittances is not enough to offset the goods trade deficit. The rupee last week on Thursday had hit another lifetime low of Rs 91.98 per US dollar. This was driven by sustained outflow of foreign portfolio investments (FPIs). FPIs withdrew $4 billion so far in January, and the outflow amounted to $11.8 billion in 2025.
“The Indian rupee underperformed in 2025. India runs a trade deficit in goods. Its net trade surplus in services and remittances is not enough to offset it. India depends on foreign capital flows to maintain a healthy balance of payments. When they run drier, rupee stability becomes a casualty,” the Economic Survey 2025-26 said.
The survey said that FPIs were net sellers of Indian securities from April to December 2025 and that the relative underperformance of Indian equities compared to other major markets, alongside “trade and policy uncertainties”, the depreciation of the Indian rupee, and a broad-based global risk-off sentiment amid elevated U.S. bond yields, weighed on FPI flows.
Ravi Dutta Mishra is a Principal Correspondent with The Indian Express, specializing in economic policy and financial regulations. With over five years of experience in business journalism, he provides critical coverage of the frameworks that govern India's commercial landscape.
Expertise & Focus Areas: Mishra’s reporting concentrates on the intersection of government policy and market operations. His core beats include:
Trade & Commerce: Analysis of India's import-export trends, trade agreements, and commercial policies.
Banking & Finance: Covering regulatory changes and policy decisions affecting the banking sector.
Professional Experience: Prior to joining The Indian Express, Mishra built a robust portfolio working with some of India's leading financial news organizations. His background includes tenures at:
Mint
CNBC-TV18
This diverse experience across both print and broadcast media has equipped him with a holistic understanding of financial storytelling and news cycles.
Find all stories by Ravi Dutta Mishra here ... Read More
