6. Goldman Sachs Growth Upgrade: Impact of India-US Trade Framework

Goldman Sachs Research has revised India’s Calendar Year (CY) 2026 real GDP growth forecast upward to 6.9% (from 6.7%). This 20-basis-point upgrade follows the landmark India-US interim trade agreement, which signaled a significant de-escalation in trade tensions and a reduction in punitive \'reciprocal\' tariffs on Indian exports. • Trade-Led Growth Impulse: The primary driver for the upgrade is the reduction of US tariffs on Indian goods—from roughly 25% to 18%. This brings India\'s tariff exposure in line with regional peers (15- 19%) and is estimated to provide an incremental annualized boost of 0.2 percentage points to the GDP.• External Balance Improvement: Lower tariffs and improved export competitiveness are expected to narrow India’s Current Account Deficit (CAD). Goldman Sachs lowered its CAD estimate by 0.25% to 0.8% of GDP for CY 2026, reflecting a more resilient external sector. • Geopolitical Dividend: The US executive order withdrawing the additional 25% levy—previously imposed as a penalty for India’s purchase of Russian oil—removes a significant \'national security\' trade barrier, benefiting sectors like electronics, chemicals, and pharmaceuticals. • Monetary Policy Pivot: With downside risks to growth receding and GDP momentum staying robust, the RBI’s Monetary Policy Committee (MPC) maintained the repo rate at 5.25% in February 2026. Goldman Sachs suggests the interest rate easing cycle has likely concluded, with stability now the priority. • Investment Sentiment: Beyond immediate trade gains, the deal is expected to mitigate \'trade-policy uncertainty,\' potentially unlocking a fresh cycle of private capital expenditure (capex) in the latter half of 2026 as global firms look to \'de-risk\' and diversify supply chains. Key Definitions • Basis Points (bps): A standard unit of measure for interest rates and other percentages in finance; 100 bps equals 1%. A 20-bp upgrade means a 0.2% increase. • Current Account Deficit (CAD): A measurement of a country’s trade where the value of the goods and services it imports exceeds the value of the products it exports. • Reciprocal Tariffs: Trade duties imposed by one country on another that match the rates the other country imposes on its goods, often used as a tool for \'fair trade\' negotiations. Constitutional & Legal Provisions • Article 246 (Seventh Schedule): Confers the Union Government exclusive power over Foreign Loans (Entry 37) and Trade and Commerce with foreign countries (Entry 41), providing the legal mandate for the India-US trade deal. • RBI Act, 1934: Specifically Section 45ZB, which mandates the Monetary Policy Committee (MPC) to determine the policy rate (Repo Rate) required to achieve the inflation target while keeping growth in mind. • Finance Act (Annual): The vehicle through which the Indian government implements changes to its own customs and import tariffs following international trade agreements. Economic Indicators at a Glance (2026 Forecasts)

UPSC Relevance • GS Paper II: Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests. • GS Paper III: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment; Effects of liberalization on the economy. • Prelims: Concepts like CAD, Repo Rate, and specific details of major trade agreements (India-US Interim Pact 2026). Conclusion The growth upgrade by Goldman Sachs underscores a \'Goldilocks\' scenario for the Indian economy—where trade tailwinds from the US pact provide stimulus without the need for further monetary easing. However, the sustainability of this 6.9% growth will depend on how effectively the government manages the transition away from Russian oil and whether the domestic private investment cycle truly ignites in response to reduced global trade friction.