India-US Trade Deal Could Boost Nominal GDP Beyond 10% Target: DEA Secretary
India's nominal GDP growth for the fiscal year 2026-27, currently projected at 10% in the Union Budget, might see an upward revision if the proposed trade agreement with the United States comes to fruition. This optimistic outlook was shared by Department of Economic Affairs (DEA) Secretary Anuradha Thakur in a recent interview, highlighting the potential economic benefits of strengthened bilateral ties.
Trade Agreement Expected to Provide Meaningful Push to Manufacturing
According to Thakur, the trade deal is anticipated to deliver a significant boost to India's manufacturing sector, which contributes over 16% to the country's GDP. "Probably we can expect an uptick, post the trade deal with the US," Thakur stated, emphasizing that the agreement would not only enhance manufacturing but also expand economic activity across various sectors.
Nominal gross domestic product, which measures economic output at current market prices without inflation adjustment, plays a critical role in determining tax revenues. Taxes are levied on current prices and incomes, making nominal GDP a crucial indicator for fiscal planning.
Deal to Lift Uncertainty and Improve Investor Sentiment
Thakur described the India-US trade deal as a positive development that could help alleviate market uncertainty and revive investor confidence, which has remained subdued in certain segments. "The wait-and-watch stance adopted by certain segments would probably get lifted. So, cumulatively, the deal should add up to a positive uptick in various parts of the economy," she explained.
Improved sentiment is expected to influence investment decisions and trade flows, thereby adding momentum to economic growth in the coming months. This comes as India's nominal GDP is projected to grow at 8% in the current fiscal year ending March 31, compared to the FY26 budget estimate of 10%.
Key Details of the Proposed Trade Agreement
US President Donald Trump recently announced that he and Prime Minister Narendra Modi have agreed to a trade deal between the two nations. Under this agreement:
- Washington would reduce its reciprocal tariff on Indian goods from 25% to 18%.
- India would lower its tariffs and non-tariff barriers against the US to zero.
- The US is also removing the extra 25% duty imposed on Indian goods as a penalty for purchasing Russian oil.
However, experts like Alexandra Hermann, lead economist at Oxford Economics, caution that US crude may not fully replace Russian oil due to differences in grade, and Venezuela's export capacity falls short of India's reliance on Russian barrels. "Overall, the recent trade understandings with both the US and the EU as well as warming relations with China reflect India’s strategy of multi-alignment and calibrated opening, rather than a sudden abandonment of its longstanding protectionist stance," Hermann noted.
Inflation Trends Stabilizing; Review of Inflation Band Underway
On the inflation front, Thakur indicated that recent data suggests core inflation is stabilizing, with its impact becoming clearer in the future. She confirmed that the finance ministry is examining the Reserve Bank of India's report on inflation targeting and will soon decide on recalibrating the inflation band.
"The 2–6% inflation band has held us in good stead so far. But the time has come for its recalibration. RBI’s recommendations are with us and we are examining them now," Thakur said. India follows the Flexible Inflation Targeting framework, which mandates the RBI to maintain CPI inflation at 4% with a tolerance band of ±2%. This framework, introduced in 2016, is reviewed every five years, with the current cycle ending in March 2026.
Public Capex to Remain Strong Despite Lower Utilization
Addressing concerns over lower-than-budgeted capital expenditure utilization this year, Thakur attributed the shortfall partly to reform-linked spending under the Special Assistance to States for Capital Investment (SASCI) scheme. Allocations under SASCI increased from ₹1.44 trillion in FY26 to ₹1.85 trillion in FY27, but reform-linked components may have experienced slower uptake.
"We believe scaled-up capex can be done without disturbing the fiscal consolidation path," she asserted. Thakur emphasized that public capital expenditure is now being deployed across diversified infrastructure segments and continues to play a catalytic role in crowding in private investment. "Public capex will also trigger private investments. For example, in inland waterways, training and skilling initiatives can come from the private sector. So, public capex is creating avenues for scaling up private investment," she added.
States Keen on SASCI Funds; Scheme Under Review
Thakur noted that states remain eager to access SASCI funds for capital spending, and the expenditure department is considering a review of the scheme. "There is thinking in the expenditure department to review the whole package — whether the framework needs to be updated or changed, or whether something new needs to be added in terms of reforms linked to allocations," she said.
Disinvestment Push: CPSE REITs on the Anvil
The Union Budget has set a higher disinvestment and asset monetization target of ₹80,000 crore for FY27, to be achieved through equity sales, monetization, and instruments such as InvITs and REITs. Thakur revealed that a new monetization avenue being explored is the creation of Real Estate Investment Trusts (REITs) from real estate assets of central public sector enterprises (CPSEs).
"Rent on space would be the income generator for the trust. We have shared a concept note on CPSE REITs with the Department of Disinvestment, and expect modalities to be worked out soon," she said. Pilot projects could be launched early in the next fiscal year.
Rupee Movement Linked to Capital Flows
On the currency front, Thakur stated that the rupee's value is closely tied to capital flows, particularly foreign portfolio investment (FPI), which tends to be cyclical and sentiment-driven. "With the change in sentiment, flows will change, and that will lead to stability in the rupee," she explained.
While acknowledging that the rupee's value affects export competitiveness and the broader economy, she stressed that currency management must be viewed in the context of multiple macroeconomic factors. "Like the RBI, we also watch rupee movement closely. But so many other things have to be at the right level. We do what we can do, and that has been the guiding principle over the last 10 years," Thakur remarked.
FDI Levels Healthy; Reforms to Drive Further Inflows
Thakur affirmed that India's gross foreign direct investment (FDI) levels are not low, but the government aims to attract more by pushing reforms and opening up new sectors. "That’s why there is a very strong push on reforms and opening up new areas like electronics, biopharma and others," she said.
Such reforms are expected to not only attract foreign capital but also stimulate domestic investment and strengthen India's position as a strategic player in global value chains. "We have a path, and we keep going on that path," Thakur concluded, underscoring the government's commitment to sustained economic growth through strategic initiatives and international partnerships.
