India Economic Survey 2026: Trump tariffs and global risks loom despite buoyant domestic consumption

The India Economic Survey 2026 , released on Thursday (Jan 29), notes that global headwinds led mainly by Trump tariffs, trade wars, geopolitical instability and protectionalism are risks, even as domestic demand remains strong. The Survey, tabled in parliament by Finance Minister Nirmala Sitharaman ahead of Union Budget 2026, states that rupee volatility and inconclusive trade talks with the US are external risks. Here are the key global aspects affecting India, as per the Economic Survey

Indian economy thriving amid a fragile and uncertain global backdrop

The Survey flags slower growth in major economies, trade disruptions, and heightened geopolitical uncertainty. Weaker growth among key trading partners could affect India’s export momentum and external demand. The global shocks could affect capital flows, exchange rates, and financial market sentiment.

Trump tariff effect: How US trade policy is affecting the Indian economy

The Survey highlights the impact of US trade policy under President Donald Trump, including the imposition of a 25 per cent reciprocal tariff along with an additional 25 per cent penalty (for buying Russian oil) on several Indian exports during 2025. These punitive measures created uncertainty for exporters.

Despite this, the Survey notes that India’s export performance remained relatively resilient due to diversification of markets, including the European Union, the United Kingdom and West Asia.

Tariffs, non-tariff barriers, and strategic trade policies are increasingly being used as geopolitical tools, leading to uncertainty in global supply chains and weakening the predictability of trade flows.

Rupee volatility as a global risk channel

The Survey highlights heightened volatility in the Indian rupee as a consequence of global shocks.

The Indian rupee fell to record lows in early 2026, driven by foreign portfolio outflows, importer demand for dollars, and uncertainty linked to US tariffs and global risk aversion.

While the Survey notes that rupee volatility reflects global financial stress, it adds that this has not materially damaged India’s growth outlook so far. In fact, rupee depreciation has partly cushioned exporters by offsetting some of the tariff-related cost pressures. However, the Survey cautions that sustained currency volatility could affect capital flows, inflation expectations, and external financing conditions.

There is a catch: Full impact of global shocks might be felt only after some time

The Survey issues a warning that global shocks often affect India with a lag. Even if near-term growth appears resilient, global disruptions could gradually affect exports, investment flows, technology transfers, and financial markets. Trade shocks, in particular, may show delayed effects as contracts adjust and supply chains reconfigure over time.

Domestic demand as the silver lining

Strong domestic demand is highlighted as a key buffer against global headwinds. Private consumption, public investment, and domestic capital formation continue to support growth even as external demand remains uncertain, according to the Survey.

The Survey’s growth projection for India, at around 6.8 to 7.2 per cent for FY27, is driven primarily by domestic demand rather than external conditions.

Fragmented global policies and investor sensitivity

The Survey notes that global policy frameworks have become increasingly fragmented, unpredictable, and often politically-driven, affecting cross-border investment and trade.

Investors are highly sensitive to political risk, trade barriers, and regulatory uncertainty. India’s challenge, according to the Survey, is to navigate this fragmented global environment while maintaining macroeconomic stability and investor confidence.

Strategic tensions affecting global capital flows

The Survey addresses specific vulnerabilities arising from US trade relations and currency fluctuations, noting their interaction with broader global dynamics.

Capital flows are increasingly shaped by geopolitical alignments and strategic considerations rather than purely economic factors. The global economy is becoming segmented into blocs, with strategic capital, technology restrictions, and export controls playing a larger role, it noted.

Capital flows are moving along geopolitical fault lines, with investment increasingly directed toward countries seen as aligned within specific geostrategic groupings.

US re-vevaluation of economic ties affecting global economy, and India

The Survey highlights challenges arising from trade uncertainty, including protectionism, retaliatory tariffs, strategic decoupling, and the use of security considerations as tools in trade policy. The US is re-evaluating alliances and placing greater emphasis on bilateral trade arrangements over multilateral frameworks, alongside the growing use of export licensing and restrictive trade practices.

Crude price didn't affect inflation, but…

While the Survey does not point to direct inflationary pressure from crude oil prices at present, it flags risks linked to the global energy transitions. This transition is increasingly dependent on critical minerals, which could be affected by strategic choke points, trade restrictions, and geopolitical tensions, it indicated. The Survey also warned about emerging geostrategic tensions related to artificial intelligence, particularly around export controls, technology transfer restrictions, and the potential weaponisation of advanced technologies.