U.S. Tariffs Expected To Dent India’s Growth, Accelerate Rate Cuts

India-West News Desk

MUMBAI – The latest round of U.S. tariffs on Indian goods is likely to shave 20 to 40 basis points off India’s GDP growth this financial year, potentially triggering deeper interest rate cuts by the Reserve Bank of India (RBI), according to several analysts who spoke to Reuters.

The Indian economy is believed to have grown at just 6.5% in the fiscal year ending March 31—its slowest pace in four years—due to weakening urban demand, persistent inflation, tighter liquidity, and stricter lending norms that have curbed personal loan and credit card growth.

President Donald Trump’s decision on April 2 to impose a 26% reciprocal tariff on Indian imports has cast a large shadow over India’s growth projections for 2025–26. The RBI had earlier projected growth at 6.7%, while the government’s economic survey pegged it between 6.3% and 6.8%.

“This would be an appropriate risk minimization strategy on the face of larger downside risks to growth compared to much lower upside risk to inflation,” said Citi’s India chief economist Samiran Chakraborty in a note dated April 3, noted Reuters.

Goldman Sachs has since revised its forecast down to 6.1% from 6.3%. Citi estimates a direct and indirect drag of 40 basis points, while QuantEco Research forecasts a 30 basis point hit to GDP.

The combination of slower growth and controlled inflation—projected to average 4.2% this year, near the RBI’s target—has already prompted the central bank to cut interest rates in February, the first such move in five years Reuters reported.

Previously, economists had anticipated only one more rate cut after April, followed by a prolonged pause. However, with U.S. tariffs now weighing on the outlook, Goldman Sachs, Citi, and QuantEco all anticipate up to 75 basis points of rate cuts this financial year—bringing the repo rate to 5.5%, the lowest since August 2022.

The RBI’s monetary easing is expected to work in tandem with fiscal measures announced in February’s Union Budget, including income tax relief for individuals earning up to 1.2 million rupees annually.