Trump's 500% Tariff Shock, Budget Bet to GDP Data: Senior Economist Sharad Kohli Explains the Big Picture

As the global economy continues to struggle due to geopolitical tensions, trade wars, and other factors, India emerges as a bright spot with a 7.4% GDP growth estimate for FY26. Against this backdrop, the Union Budget 2026-27, scheduled to be presented on February 1, is expected to provide a significant boost to key sectors such as energy, infrastructure, and research and development, setting the tone for sustained economic momentum.

In an exclusive conversation with GoodReturns' Arnima Dwivedi, senior economist Sharad Kohli, explains how India remains on track to remain one of the world's fastest-growing economies. He also highlights how the United States President Donald Trump's proposed 500% tariffs could backfire by isolating America rather than hurting emerging economies like India. Here's an excerpt from GoodReturns's exclusive interview with Sharad Kohli.

Question: India's GDP is estimated at 7.4%, with strong contributions from multiple sectors, especially manufacturing and services. How do you assess the GDP's First Advance Estimates for FY26?

Answer: "At a time when the global economy is growing at a pace of just 2.5%, and mark my words these so "called developed countries like Italy, France, and the UK are either almost in recession or standing at its doorstep. The US itself is reporting GDP growth of 1.8%, but my own economic analysis suggests that this is not the reality; the situation there is actually quite weak," stated the senior economist.

"When the global economy is struggling, and India's GDP advance estimates come in at 7.4%, it is extremely encouraging-especially the performance of the manufacturing sector, which has really impressed me. The services sector has always been strong, and as you know, nearly 60% of our economy is driven by services. However, if we look at the past decade, we were somewhat lagging in manufacturing and were not particularly known for it. But now, manufacturing has created a storm. Mobile phones worth $50 billion have been manufactured and exported from India alone," Sharad Kohli added.

"Take pharmaceuticals, engineering goods, gems and jewellery, textiles-every category has provided strong momentum. In addition, income tax relief of ₹1 lakh, which came into effect from April 1, has significantly increased disposable income in the hands of people, leading to higher spending. Strong demand is also emerging from rural areas," explained Kohli.

"I believe this is a very robust economy and a matter of envy for the rest of the world, as being the fastest-growing emerging economy naturally makes a few people uncomfortable. Adding to this, the Reserve Bank of India cut interest rates, making money cheaper. Loans are easily available and at lower costs, which boosts domestic consumption."

"The monsoon was good. While there were floods in some places-as always happens-overall, the monsoon was more than normal, resulting in a good harvest. Taken together, the Indian economy is a shining star. Along with services and manufacturing, the tertiary sectors-such as finance and the hotel industry-have also performed very well," he added.

"I feel that apart from a few pockets, overall performance has been strong. Agriculture has also recorded growth of 3.1%. There is a structural surplus at this time, and India has become the food basket of the world."

Question: Which sectors should we focus on if we want to keep the GDP growing like this?

Answer: "I am very bullish about manufacturing. I still am. I personally mentor some startups, both in India and in Silicon Valley, and whenever there is a startup connected to manufacturing, even though they are fewer in number, any such startup becomes very special to me, because manufacturing has huge potential. If we talk about sectors, FMCG looks very good to me from here, because our domestic consumption story is strong. Around 55-60% of the Indian economy is driven by consumption, so the consumption story looks very promising. I also have high hopes for renewable energy. I see very good potential in electric vehicles. In renewable energy too, solar, wind, bio, all of these look very strong. And I just can't take my eyes off the defence sector, given the current geopolitical situation. I see a tremendous future for Indian defence manufacturing. So for people who want to invest in the stock markets and are always looking for sectors, I think these sectors will not only help drive GDP growth, they will also work well for them as investors," explained Sharad Kohli.

Question: United States President Donald Trump has approved 500% tariffs on countries that continue to trade with Russia. With the implementation the 'Russia Sanctions Bill', countries like India, China, and Brazil can face higher tariffs. How do you see this? How should India retaliate now?

Answer: "Our team had created a new index called TMI: the Trump Mood Index. So this index covers global stock markets, global businesses, geopolitics - everything. So I feel this raises the question: Which path is Mr. Trump on? The whole world is surprised and wondering whether the world's largest economy can really be run in this way. You mentioned 500% tariffs. He has approved this bill. So this morning, America has taken another decision: apart from 500% tariffs, it has decided to pull itself out of 66 global organisations, 31 of them are UN bodies and 35 are non‑UN organisations. If we try to understand this, it has very far‑reaching implications - not just for America. What is America doing? It is isolating itself."

"The way Mr Trump wants to take things, I feel like he wants to move America to the Moon or to Mars and settle it there so that he has nothing to do with anyone at all. No one is friends with anyone. He has no friends."

"This is the same person who, some time ago, saw himself as a contender for the Nobel Prize. Maybe when he didn't get the Nobel Prize, he thought, "People don't see me as a messiah of peace, so now I'll show them my other side. Don't vote for me if you don't want to, that's fine." So I'm really very surprised"

"If a 500% tariff is imposed on India, then what are you really saying in other words? You're basically saying: don't send any goods here. We don't want anything from you. That's exactly what putting such a tariff means."

"You might as well just say directly that you don't want goods from us. At a 500% tariff, not even a single needle can realistically be exported. In India, I've already spoken to many exporters since these reciprocal tariffs were introduced, and those exporters have had to look for alternative markets. We have FTAs with Australia, with New Zealand, with the UAE, with England, and we're going to have one with Europe as well," he added.

Question: The Union Budget 2026-27 will be presented on 1 February 2026. What new things can it bring this time? People are definitely talking about it being a forward‑looking budget. What major announcements can we expect amid geopolitical uncertainty and global conflicts?

Answer: The Union Budget 2026 may include measures to counter America's tariff policy, according to Sharad Kohli. "If the 500% tariff actually comes into effect ahead of the Budget announcement, then you will definitely see major countermeasures. For exporters, the Government of India has recently launched a credit scheme. It has provided support for exporters to explore new markets. The budget will definitely be very forward-looking. The Government of India has taken it upon itself to push ahead with reforms," said Kohli.

"I believe the Government of India is committed to moving these reforms forward without any pause. In the budget, you will hear many announcements for the agriculture sector. You will hear a lot about space technology. You will see spending on R&D. You will hear about new schemes for startups. You will also hear a lot in this budget for women and youth. And as I said, we can never ignore the agriculture sector. You will hear about the next level of reforms in that area," he added.

"You'll hear more announcements related to infrastructure. I also feel that the new Income Tax Act that's coming will be a big development. From April 1, 2026, the new Income Tax Act will come into effect. So, in terms of tax, although many tax-related benefits were kind of front-loaded in the last budget, since big announcements like the 1.2 million (12 lakh) exemption were already made then, I feel that in this budget, the tax-related announcements will be those that are connected to the new Income Tax Act."

"The government will try to synchronise any amendments with the new Income Tax Act, which has far fewer sections-Section 280, Section 283, and so on, and is overall much smaller in size. It spans about 880 pages, or roughly 600-620 pages, and has been significantly simplified. Any amendments introduced will be aligned with this framework."
"I therefore expect the budget to be very forward-looking. It will enable everyone to continue doing what they need to do, while the country steadily moves ahead on its development path. Over time, we will see countries being naturally drawn towards India," he added.

Sharad Kohli also highlighted the key FTAs signed by India wth other countries like Australia, New Zealand, Britain and the UAE. Underlining how these trade deals reflect how much things have changed, Sharad Kohli stated, "India used to be the bigger beneficiary of FTAs. Today, I have no hesitation in saying that in these agreements, those countries are actually benefiting more than we are."