US tariffs to hit India's GDP growth

US Tariffs Trigger Downward Revision in India’s Growth Forecast

Due to additional U.S. tariffs, India's economic growth is predicted to decelerate by 20–40 basis points this fiscal year. With GDP growth projections lowered down to about 6.1%, analysts anticipate that the Reserve Bank of India would offset the damage with more interest rate decreases. According to economists, the recent U.S. tariffs could cause India's economic growth to drop by 20–40 basis points during the current fiscal year, which would lead to further interest rate cuts by the central bank.

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President Donald Trump's new tariff measures put pressure on RBI's 6.7% growth projection for 2025–2026 and the government's economic survey forecast of 6.3%-6.8% on Wednesday by imposing a 26% reciprocal tax on India.

संपूर्ण आर्टिकल वाचा:Tariff on Indian Exports

Goldman Sachs reduced its growth prediction from 6.3% to 6.1% following the tariffs. Mumbai-based QuantEco Research predicted a 30 bps hit on growth, while Citi predicted a 40 bps direct and indirect drag. In addition, the RBI lowered interest rates for the first time in five years in February, as inflation is predicted to average 4.2% this fiscal year, which is near to the RBI's target. 

RBI’s Response: Potential Rate Cuts Expected Amid Growth Concerns

According to a Reuters poll, analysts expect a 25 bps cut to 6.00% in April, followed possibly by another in August. However, the U.S. tariffs have caused a reassessment of those forecasts, even though the poll indicated that analysts had only anticipated one further cut after that—to a policy repo rate of 5.75% in August—before a protracted halt.

In addition to predicting only one or two more cuts this year, Goldman, Citi, and QuantEco Research now anticipate 75 basis points of reduction this fiscal year, bringing the policy rate down to 5.5%—the lowest level since August 2022. In a report late Thursday, Samiran Chakraborty, chief economist at Citi's India, stated, "This would be an appropriate risk minimization strategy in the face of larger downside risks to growth compared to much lower upside risk to inflation."

The Monetary Policy Committee (MPC) stated in February that the growth-inflation dynamics "open up policy space for the MPC to support growth, while remaining focused on aligning inflation with the target."

Tax cuts and monetary policy relaxation will boost domestic demand. According to the source, these should serve as economic buffers. India does not currently see the need for an economy-wide stimulus, but sector-specific stress might be alleviated with focused actions.
Vivek Kumar, an economist of QuantEco Research, stated that "rewriting trade rules would prompt policymakers globally to take a hard look at reviving domestic consumption and demand." reviving domestic consumption and demand, which in India’s case, could take the form of lower interest rates and a weaker rupee.