India's trade deals will matter more than ever amid uncertainties

KUALA LUMPUR, 23 JULY 2026 —

India's macroeconomic outlook has taken a hit due to geopolitical tensions, with the Reserve Bank of India downgrading its growth projections and raising inflation expectations, according to Dr. Rumki Majumdar, Director and economist with Deloitte India.

Real gross domestic product growth stood at 7.7% year over year in the last fiscal, beating the government's first advance estimate, with growth remaining in the final quarter at 7.8%, driven by domestic demand.

India's merchandise trade deficit widened to US$776 billion, but services exports and remittances helped cushion the overall external balance, with the country retaining its position as the world's eighth largest services exporter in 2025.

The performance in fiscal 2026 to 2027 will likely be shaped by several key risks, including potential delays in the US-India trade deal, elevated global inflation, and tight monetary policy, according to Deloitte.

The US-India trade deal is in its final phase and will likely help bring down tariffs on Indian exports to 10%, but implementing the arrangement will take time, says Dr. Majumdar.

The RBI faces a tough balancing act between promoting growth, maintaining price stability, and keeping the currency steady, and has announced measures to encourage capital inflows, including incentives to attract foreign capital, which could bring in US$40 billion to US$45 billion over the next few months.

Overseas investors invested a record US$4.2 billion in Indian government bonds in June, marking the strongest inflow into debt instruments since August 2024, according to a study by the State Bank of India.

However, if inflation rises due to El Niño effects, the RBI may have to tighten its policy stance, says Ghatak.

For Malaysian businesses, the development is significant as India is a major trading partner, and any changes in its trade policies or economic outlook could have a direct impact on trade flows and investment decisions, particularly in sectors such as manufacturing and services.

As India navigates these challenges, the right industrial policy reforms can help the economy integrate more effectively into global value chains, while lowering its vulnerability to geopolitical and supply-chain disruptions, says Dr. Majumdar.

In the long term, India's growth prospects remain strong, driven by its large and growing consumer market, and its potential to become a major hub for manufacturing and services, according to Deloitte.

However, in the short term, the country needs to manage its external vulnerabilities and macro financial risks, and the outcome of the US-India trade deal will be in determining the trajectory of India's economic growth, says Ghatak.