10 February 2026
Godot arrives. The wait for an India-US trade deal has been long. But it finally arrived on 2 February, though we are still awaiting details.
The US has agreed to lower the 50% tariff on India’s goods to 18%. This comes in two parts. One, President Trump announced that under a trade deal, India’s “reciprocal tariffs” will be set at 18% instead of 25%, effective immediately. Two, US officials said the extra 25% tariff related to Russian oil will also be removed, as India has reportedly agreed to stop buying Russian oil (Reuters, 2 February 2026). An official press release with details has not been released. There are three areas in which more clarity is needed:
One, will India have to stop all Russian oil purchases? Import data shows India has already scaled down Russian purchases (Exhibit1). We also believe that the discount on Russian oil has fallen, so switching to other sources may not be too costly.
Two, what’s the timeline for the USD500bn of US goods (energy, technology, agriculture,and coal) that the US said India has agreed to buy? We believe India would switch suppliers rather than raise its overall import bill (Exhibit 2).
Three, the US President also mentioned that India will lower all tariff and non-tariff barriers on US goods to zero. The details are not out, but the India-EU trade deal could provide a framework under which both parties could safeguard some sectors.
Short-term growth impact. The US accounts for 20% of India’s goods exports (2.2% of GDP). In an earlier report we had calculated that the 50% tariff could shave off up to 0.7ppt from India’s GDP growth. With the tariff now more than halved, we believe the growth drag will halve to about 0.3ppt. These numbers assume that one-third of exports remain exempt from tariffs (e.g. pharmaceuticals, critical minerals, and fuels), and some sectors face differential tariffs (autos, steel, and aluminium).
The items that were most at risk were the labour-intensive jewellery, textile, and food items. These could get some reprieve (Exhibit 3). At the new 18% tariff rate, India has a rate marginally lower than the 19% levied on most ASEAN economies (excluding Singapore).
Medium-term growth impact.This is where we expect to see the most benefit. The US-India trade pact adds to a string of external reforms India has undertaken last year – completing FTAs with the EU and the UK, lowering some customs duties, and becoming more open to FDI. With these, India is putting exports centre stage as a key driver of growth, and benefitting from the China+1 theme.
Separately, it is also diversifying itsgrowth strategy as was clear from the just concluded Budget speech. From being focused on just high-tech goods and services exports, such as electronics and professional services, it is now also focusing on re-energising mid-tech exports, such as textiles. Given India’s wage advantage, this is a welcome strategy.
Lastly, external reforms are being complemented by domestic reforms, such as the ongoing government deregulation drive. Of course, much depends on implementation.
Inflation and BoP impact. There are several moving parts on inflation. Lower import tariffs and a more stable currency should lower inflation. However, switching to more expensive oil, and a change in the CPI base year could marginally raise inflation in FY27. The impact of none of these factors, we believe, will be large. And in most parts will offset each other.
The excess capacity from China driving disinflation remains strong. And we continue to believe that inflation will remain close to the 4% RBI target. All of this means that the central bank should be able to hold the repo rate steady for the foreseeable future, while focusing on providing enough liquidity.
Meanwhile, if the improvement in sentiment and push for exports raises capital inflows, the balance of payments deficit would fall, supporting the currency.
Additional disclosures
1. This report is dated as at 03 February 2026.
2. All market data included in this report are dated as at close 02 February 2026, unless a different date and/or a specific time of day is indicated in the report.
3. HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking, Principal Trading, and Research businesses toensure that any confidential and/or price sensitive information is handled in an appropriate manner.
4. You are not permitted to use, for reference, any data in this document for the purpose of (i) determining the interest payable, or other sums due, under loan agreements or under other financial contracts or instruments, (ii) determining the price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument, and/or (iii) measuring the performance of afinancial instrument or of an investment fund.
This document is prepared by The Hongkong and Shanghai Banking Corporation Limited (‘HBAP’), 1 Queen’s Road Central, Hong Kong. HBAP is incorporated in Hong Kong and is part of the HSBC Group. This document is distributed by HSBC Continental Europe, HBAP, HSBC Bank (Singapore) Limited, HSBC Bank (Taiwan) Limited, HSBC Bank Malaysia Berhad (198401015221 (127776-V))/HSBC Amanah Malaysia Berhad (200801006421 (807705-X)), The Hongkong and Shanghai Banking Corporation Limited, India (HSBC India), HSBC Bank Middle East Limited, HSBC UK Bank plc, HSBC Bank plc, Jersey Branch, and HSBC Bank plc, Guernsey Branch, HSBC Private Bank (Suisse) SA, HSBC Private Bank (Suisse) SA DIFC Branch, HSBC Private Bank Suisse SA, South Africa Representative Office, HSBC Financial Services (Lebanon) SAL, HSBC Private banking (Luxembourg) SA and The Hongkong and Shanghai Banking Corporation Limited (collectively, the “Distributors”) to their respective clients. This document is for general circulation and information purposes only. This document is not prepared with any particular customers or purposes in mind and does not take into account any investment objectives, financial situation or personal circumstances or needs of any particular customer. HBAP has prepared this document based on publicly available information at the time of preparation from sources it believes to be reliable but it has not independently verified such information. The contents of this document are subject to change without notice. HBAP and the Distributors are not responsible for any loss, damage or other consequences of any kind that you may incur or suffer as a result of, arising from or relating to your use of or reliance on this document. HBAP and the Distributors give no guarantee, representation or warranty as to the accuracy, timeliness or completeness of this document. This document is not investment advice or recommendation nor is it intended to sell investments or services or solicit purchases or subscriptions for them. You should not use or rely on this document in making any investment decision. HBAP and the Distributors are not responsible for such use or reliance by you. You should consult your professional advisor in your jurisdiction if you have any questions regarding the contents of this document. You should not reproduce or further distribute the contents of this document to any person or entity, whether in whole or in part, for any purpose. This document may not be distributed to any jurisdiction where its distribution is unlawful. The following statement is only applicable to HSBC Bank (Taiwan) Limited with regard to how the publication is distributed to its customers: HSBC Bank (Taiwan) Limited (“the Bank”) shall fulfill the fiduciary duty act as a reasonable person once in exercising offering/conducting ordinary care in offering trust services/business. However, the Bank disclaims any guaranty on the management or operation performance of the trust business.
The following statement is only applicable to by HSBC Bank Australia with regard to how the publication is distributed to its customers: This document is distributed by HSBC Bank Australia Limited ABN 48 006 434 162, AFSL/ACL 232595 (HBAU). HBAP has a Sydney Branch ARBN 117 925 970 AFSL 301737.The statements contained in this document are general in nature and do not constitute investment research or a recommendation, or a statement of opinion (financial product advice) to buy or sell investments. This document has not taken into account your personal objectives, financial situation and needs. Because of that, before acting on the document you should consider its appropriateness to you, with regard to your objectives, financial situation, and needs.
Important Information about the Hongkong and Shanghai Banking Corporation Limited, India (“HSBC India”)
HSBC India is a branch of The Hongkong and Shanghai Banking Corporation Limited. HSBC India is a distributor of mutual funds and referrer of investment products from third party entities registered and regulated in India. HSBC India does not distribute investment products to those persons who are either the citizens or residents of United States of America (USA), Canada or New Zealand or any other jurisdiction where such distribution would be contrary to law or regulation.
Mainland China
In mainland China, this document is distributed by HSBC Bank (China) Company Limited (“HBCN”) and HSBC FinTech Services (Shanghai) Company Limited to its customers for general reference only. This document is not, and is not intended to be, for the purpose of providing securities and futures investment advisory services or financial information services, or promoting or selling any wealth management product. This document provides all content and information solely on an "as-is/as-available" basis. You SHOULD consult your own professional adviser if you have any questions regarding this document.
The material contained in this document is for general information purposes only and does not constitute investment research or advice or a recommendation to buy or sell investments. Some of the statements contained in this document may be considered forward looking statements which provide current expectations or forecasts of future events. Such forward looking statements are not guarantees of future performance or events and involve risks and uncertainties. Actual results may differ materially from those described in such forward-looking statements as a result of various factors. HSBC India does not undertake any obligation to update the forward-looking statements contained herein, or to update the reasons why actual results could differ from those projected in the forward-looking statements. Investments are subject to market risk, read all investment related documents carefully.
© Copyright 2025. The Hongkong and Shanghai Banking Corporation Limited, ALL RIGHTS RESERVED.
No part of this document may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of The Hongkong and Shanghai Banking Corporation Limited.
Important information on sustainable investing
“Sustainable investments” include investment approaches or instruments which consider environmental, social, governance and/or other sustainability factors (collectively, “sustainability”) to varying degrees. Certain instruments we include within this category may be in the process of changing to deliver sustainability outcomes. There is no guarantee that sustainable investments will produce returns similar to those which don’t consider these factors. Sustainable investments may diverge from traditional market benchmarks.
In addition, there is no standard definition of, or measurement criteria for sustainable investments, or the impact of sustainable investments (“sustainability impact”). Sustainable investment and sustainability impact measurement criteria are (a) highly subjective and (b) may vary significantly across and within sectors.
HSBC may rely on measurement criteria devised and/or reported by third party providers or issuers. HSBC does not always conduct its own specific due diligence in relation to measurement criteria. There is no guarantee: (a) that the nature of the sustainability impact or measurement criteria of an investment will be aligned with any particular investor’s sustainability goals; or (b) that the stated level or target level of sustainability impact will be achieved.
Sustainable investing is an evolving area and new regulations may come into effect which may affect how an investment is categorised or labelled. An investment which is considered to fulfil sustainable criteria today may not meet those criteria at some point in the future.
