US-India trade pact to open new market access and energise exports: Finmin report

New Delhi: A successful US-India bilateral trade agreement could flip current headwinds into tailwinds, opening up new market access and energising exports, said a report by the finance ministry on Tuesday.

India and the US are likely to agree on an interim trade agreement before July 8 with New Delhi pushing for full exemption from the 26 per cent reciprocal tariff on domestic goods.

The US on April 2 imposed an additional 26 per cent reciprocal tariff on Indian goods but suspended it for 90 days till July 9. However, the 10 per cent baseline tariff imposed by America remains in place.

The report also emphasised India has the potential to remain as one of the most promising destinations for investment, amid global uncertainty.

Foreign direct investors are likely to respond positively to policies that strengthen the country’s medium-term growth prospects, the Monthly Economic Review released by the finance ministry said.

In particular, it said, policies that enhance the skills and productivity of the country’s young workforce can significantly strengthen the virtuous cycle of investment and growth.

The report said India continues to be the fastest growing major economy and faced the least amount of cut amongst other global economies as projected by various global agencies.

As per the IMF’s World Economic Outlook (April 2025), India’s real GDP growth for 2025-26 is pegged at 6.2 per cent, 30 basis points lower than its previous forecast in January 2025. These revisions are on account of higher levels of global uncertainties and trade tensions.

Multiple agencies project India’s growth at 6.3-6.7 per cent in FY26, supported by robust domestic fundamentals, stable macroeconomic management, and growing government capital expenditure, while declining inflation strengthens this outlook, it said.

As per the report, India’s economy as of April 2025 is characterised by robust domestic fundamentals, prudent macroeconomic management, and a capacity to withstand external shocks.

Strong private consumption, especially the rural rebound, and robust services exports remain the primary engines of growth.

"The services sector continues to post healthy expansion, offsetting some of the softness in merchandise exports. The Indian rupee has remained relatively stable, and foreign exchange reserves continue to provide a cushion against external shocks," it said.

Government capital expenditure has played a pivotal role in supporting economic activity, providing a buffer against external shocks, it said, adding, the government’s direct tax exemptions and fiscal measures, along with the rate cuts from the RBI, are expected to further stimulate consumption and investment.

"These could accelerate the recovery and lift growth towards the upper end of forecasts of 6.3 per cent to 6.8 per cent, given in the latest Economic Survey," it said.

"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," it added.

With firms adopting a more cautious stance amid global uncertainty and tighter financial conditions, the report, however, said, private sector capital expenditure could lag behind.

On inflation, the report said, the outlook remains optimistic, supported by low core inflation and a decline in food prices.

Going forward, it said, inflationary pressures stemming from food items are expected to remain low on account of a good rabi harvest, an increase in the area sown under summer crops, and healthy buffer stocks of foodgrains.

The IMD’s forecast of above-normal rainfall and falling crude oil prices further reinforces this disinflationary trend.