RBI Governor Sanjay Malhotra has stated that India is engaging vigorously and proactively with the US administration on a foreign trade agreement. He made the statement while highlighting concerns about the impact of the 26 per cent reciprocal tariff imposed by the United States, which came into effect on Wednesday.
The US Tariff Concerns
Underlining the US tariff concerns, the RBI governor said, “First and foremost, uncertainty in itself dampens growth by affecting investment and spending decisions, both of businesses and households. Second, the dent in global growth due to trade frictions will also impede domestic growth. Third, higher tariffs shall have a negative impact on net exports. The impact of relative tariffs – our relative tariffs vis-à-vis some of the other countries – is quite low. Then there is the unknown of the elasticities of our export and import demand and the policy measures adopted by us.”
The Growth Forecast Cut
Citing the uncertainty due to US reciprocal tariffs, the RBI has also revised India's GDP growth estimate for the current fiscal year to 6.5 per cent, down from its previous forecast of 6.7 per cent.
The RBI Governor said, “Real GDP is now projected for this fiscal 2025-26 at 6.5 per cent, with Q1 at 6.5%, Q2 at 6.7 %, Q3 at 6.6%, and Q4 at 6.3%. While the risks are evenly balanced around these baseline projections, uncertainties remain high in the wake of recent spike in global volatility. The growth projection for the current year has been marked down by 20 basis points relative to our earlier assessment of 6.7 per cent in the February policy. This downward revision essentially reflects the impact of global trade and policy uncertainties."
The Interest Rate Cut
The Reserve Bank of India has also cut its key interest rate by 25 basis points to 6 per cent. Announcing the decision, RBI Governor Sanjay Malhotra said that the central bank's Monetary Policy Committee voted unanimously to reduce the repo rate to 6 per cent after a detailed assessment of the evolving of macroeconomic and financial conditions.
