Nomura Ups FY27 Growth Forecast to 7.1 Pc on US Trade Deal

Chennai: Nomura has revised India’s FY27 growth forecast to 7.1 per cent, higher than the earlier consensus rate of 6.6 per cent with India finalising a trade deal with the US. However, the current account deficit for FY27 at 0.8 per cent of GDP in FY27, similar to FY26.

“We project GDP growth for FY27 at 7.1 per cent, above consensus of 6.6 per cent, with the additional tailwinds from the lagged impact of past policy easing, low inflation, continued reforms and supportive fiscal policy. Sentiment shifts due to the US deal are further tailwinds,” Nomura said in a report.

However, the potential downside to GDP growth in FY26 was limited as exporters managed to diversify. The upcoming revisions to the GDP series also add some uncertainty. It sees more medium-term benefits for India, as it integrates into both US and EU-centric supply chains.

The US is India’s largest goods export destination, accounting for $86.5 billion or 19.8 per cent of total exports, and 2.2 per cent of GDP in FY25, India’s key exports to the US include electronics, textiles, gems and jewellery, pharmaceuticals, industrial machinery and other household items like leather, plastic, footwear, paper and glass articles. For several sectors, exports to the US account for 30-40 per cent of India’s global exports.

With the reduction in US tariffs to 18 per cent, we estimate the announced effective tariff rate on the total exports should fall to around 14.6 per cent from 33.6 per cent earlier. So far, around a third of US imports from India like electronics, pharmaceuticals and mineral oils were out of the scope of tariffs. Over 9 per cent of the goods remain under Section 232 tariffs with 25 per cent for autos and auto parts and 50 per cent for metals and the remaining close to 60 per cent were under the 50 per cent tariff coverage, which now will enjoy lower tariffs.

The reduction in tariffs to 18 per cent is a significant change that will reduce margin pressure on labour-intensive export segments. With this deal, Indian exporters are now at par with competitors in Southeast Asia, and the trade in products such as toys and furniture that was previously being diverted to countries like Vietnam should now flow back to India.

India’s oil imports from Russia have been moderating over the last month, mainly due to US sanctions on the two Russian firms, Lukoil and Rosneft. The discount on Russian oil imports has moderated to low single digits, but switching to other energy sources will be slightly more expensive and time-consuming, as refineries may need to be reconfigured. Meanwhile, India’s commitment to buy more US energy, coal and other capital goods equipment will likely just shift India’s trade balance between the US and rest of the world. We project the current account deficit for FY27 at 0.8 per cent of GDP in FY27, similar to FY26.