According to the CEA, overall, aggregate demand growth in the economy should hold up, with September likely to witness a pick-up in consumption. While it is hard to provide a precise estimate of the impact of tariffs on GDP due to secondary effects and wider implications, Nageswaran believes the disruption will be short-lived.
Indian exports to the US are facing levies as high as 50% from Aug. 27 onwards. Nageswaran said he is hopeful that the tariff row will be resolved sooner rather than later.
Industry, meanwhile, has already started making adjustments to manage the tariff burden, he added. Companies are planning to distribute some costs along the export chain, absorb part of the expenses, and diversify exports to reduce dependency. The impact of tariffs will likely be concentrated in certain manufacturing sectors.
The CEA acknowledged that downside risks remain, though it is not necessary to assume that the effect will be significant. However, the final impact could be lower than initially feared.
He further noted that discussions between India and the US are ongoing, and the additional 25% tariff is likely to be temporary. Stronger consumption growth is expected to partly offset the drag from tariffs. Importantly, there has not been much evidence of front-loading of exports since tariff concerns only emerged in July.