UBS cuts India’s FY26 GDP forecast to 6% amid US tariff hike and global growth concerns

UBS has revised India’s real GDP growth forecast for FY26 to 6 percent from its earlier projection of 6.3 percent, citing mounting global headwinds and the imposition of a 27 percent reciprocal tariff by the United States, effective April 15. The Swiss investment bank warned that India’s export prospects may be dented due to weaker global demand and the possibility of extended trade frictions with key partners like the US and China.

GDP Cut Reflects Global Uncertainty, Tariff Impact

UBS said the latest cut in India’s FY26 growth outlook factors in the economic drag from the newly implemented US tariffs and a broader global slowdown. It had already assumed a 25-basis-point drag in its earlier estimates but revised it lower further given the latest developments. While the domestic economy is expected to receive support from improving rural demand and urban stability, UBS cautioned that private corporate capital expenditure may see delays due to dampened sentiment and concerns over China dumping excess capacity into global markets, including India.

"India's goods exports could take a meaningful hit due to weaker global growth. Our base-case forecast assumes that India could offer more tariff cuts on US imports and increase purchases of US goods, including energy and defence equipment at the expense of Russia," said UBS in the report.

Domestic Demand Likely to Cushion the Blow

Despite the external shocks, UBS maintained that household consumption is likely to remain a pillar of strength. The brokerage expects cyclical rural recovery, aided by favourable crop prospects, and easing inflation to support consumption. UBS also highlighted that urban demand is likely to find support from anticipated rate cuts and falling fuel prices. However, the firm flagged a likely setback to India's goods exports amid decelerating global trade.

UBS Sees More Room for Monetary Easing

According to UBS, India’s domestic growth momentum may benefit from further policy interventions. The firm believes the easing cycle by the Reserve Bank of India could now be deeper, projecting rate cuts of up to 125 basis points in this cycle compared to its earlier estimate of 75 basis points. UBS expects inflation to moderate to 4 percent in FY26, supported by lower global crude prices and cheaper Chinese goods entering India. It urged the central government to stick to its FY26 capex targets and consider reducing retail fuel prices to support household purchasing power.

Tariff Negotiations with US a Key Watchpoint

UBS noted that India’s current approach of pursuing a balanced trade deal with the United States, instead of opting for immediate retaliation, may work in its favour. As per media reports cited by UBS, the two nations may arrive at a revised trade agreement by the end of the year. In the meantime, discussions are expected to focus on tariff reductions across key sectors such as agriculture, energy, automobiles, electronics, and textiles, which collectively account for around 50 percent of India’s exports to the US.

Global Growth and Trade Faces Broader Risks

UBS further warned that the unexpectedly high US tariffs could drag global trade volumes down by as much as 7.5 percentage points. It highlighted that its US economics team has cut 2025 GDP growth projections for the US from 1.6 percent to 0.4 percent. The Asia economics team also sees significant ripple effects, expecting Chinese exports to contract by 5 percentage points and China’s GDP to dip by 1.5 percentage points. ASEAN-5 economies may also see a 0.7-percentage-point hit to growth.

Overall, while UBS acknowledged that India is not immune to global trade tensions, it believes the country is relatively less vulnerable due to its limited dependence on goods trade and the growing share of services exports, which now account for nearly 47 percent of total exports. Despite the downgraded GDP forecast, UBS reiterated that India’s structural growth narrative remains intact, with manageable macro risks and potential cushioning from domestic demand and policy support.

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