Highlights:
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India’s economic growth is projected to ease from 7.4% in 2025 to 6.6% in 2026.
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Strong domestic consumption and public investment are expected to offset the impact of higher US tariff measures.
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Exposure to US tariff actions remains limited due to exemptions on key exports such as electronics and smartphones.
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Inflation has moderated, opening space for possible interest rate cuts.
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India continues to anchor South Asia as the world’s fastest-growing region.
India’s economy is expected to expand by 6.6% in 2026, retaining its position as the world’s fastest-growing major economy despite ongoing global uncertainty and higher US tariff levels, according to a new United Nations assessment. The projection underscores the strength of domestic demand and public investment in shielding the economy from external pressures linked to US tariff policy.
The forecast is part of the World Economic Situation and Prospects 2026 report released by the UN Department of Economic and Social Affairs (UN DESA). While the report expects India’s growth to moderate from an estimated 7.4% in 2025, it described the outlook as “exceptionally high” in comparison with global peers, even as US tariff risks persist.
US Tariff Impact and India’s Growth Outlook
According to the United Nations, resilient private consumption, strong public investment, recent tax reforms, and lower interest rates are expected to support India’s near-term growth trajectory. The report acknowledged that a higher US tariff regime could weigh on export performance if current rates remain in place. However, it added that the overall macroeconomic impact of US tariff measures on India is likely to remain contained.
The US accounts for roughly 18% of India’s total exports, making US tariff policy an important factor for select industries. Despite this exposure, the UN noted that several high-value export categories, including electronics and smartphones, are expected to remain exempt from US tariff actions. This limits the downside risk from higher US tariff levels.
How Domestic Demand Offsets US Tariff Risks
The report emphasized that India’s domestic growth drivers are strong enough to offset most external headwinds, including those arising from US tariff increases. Private consumption continues to benefit from stable employment conditions and rising labor force participation across both rural and urban areas. Public investment has remained robust, with government spending focused on infrastructure, defense, renewable energy, and digital connectivity.
On the supply side, the continued expansion of manufacturing and services remains a key growth engine. The UN said this diversification has helped reduce India’s vulnerability to US tariff-related shocks, particularly when compared with economies more dependent on merchandise exports to the US market.
US Tariff Exposure and Export Diversification
While US tariff measures could affect specific product categories, the UN pointed out that rising demand from Europe and the Middle East is expected to partially offset any slowdown in US-bound shipments. India’s services exports, especially in technology and digital services, have also strengthened the country’s ability to absorb external trade pressures linked to US tariff changes.
The report highlighted India’s growing integration into global electronics supply chains, noting that diversification of export destinations has improved resilience against country-specific trade barriers, including higher US tariff rates.
Inflation, Interest Rates, and Policy Support Amid US Tariff Pressures
Inflation trends remain supportive of growth. India’s inflation averaged about 3% during the first nine months of the year, helped by lower food prices and favorable base effects. Inflation is forecast to reach 4.1%, close to the Reserve Bank of India’s midpoint target. This provides room for potential interest rate cuts, which could further support investment and consumption as US tariff pressures persist.
Public spending has driven strong growth in gross fixed capital formation, reinforcing the economy’s ability to withstand external shocks such as US tariff hikes. Employment indicators remained broadly stable in 2025, with unemployment at 5.2% in October, compared with 4.9% in 2024. Labor force participation increased in both rural and urban areas, supporting consumption growth.
South Asia Growth and the US Tariff Context
Ingo Pitterle, Senior Economist and Officer-in-Charge of the Global Economic Monitoring Branch at UN DESA, said South Asia is expected to remain the world’s fastest-growing region, with growth of 5.6%, largely driven by India. He cited robust domestic demand, easing inflation, a strong agricultural harvest, and sustained policy support as key contributors.
Pitterle told reporters that the UN has “significantly upgraded” its GDP forecasts for India for both 2025 and 2026, pointing to a convergence of supportive factors despite global trade challenges linked to US tariff developments.
Currency Stability Despite US Tariff Developments
The Indian rupee remained stable during the first half of the year but weakened later amid stronger US growth, trade negotiations, portfolio outflows, and higher US tariff levels. Even so, the UN said India’s strong economic fundamentals should support the currency in the near term, limiting spillover risks from US tariff actions.
India’s Growth Resilience Despite US Tariff Headwinds
Overall, the UN assessment suggests that India’s economy remains well positioned to navigate a challenging global environment shaped in part by higher US tariff measures. Strong domestic consumption, sustained public investment, export diversification, and easing inflation together provide a buffer against US tariff-related risks. As a result, India is expected to maintain solid growth momentum in 2026 and continue playing a central role in making South Asia the world’s fastest-growing region.
