Indian economy
Indian Economy Faces Growth Risks from New US Tariff The Indian economy could see growth fall below 6% in the current fiscal year if US President Donald Trump’s newly announced US tariff of at least 25% on Indian goods remains in effect throughout 2025-26. Economists project that this US tariff could reduce the Indian economy’s growth by 20-40 basis points (bps), creating significant challenges for existing forecasts. ANZ economists Dhiraj Nim and Sanjay Mathur estimate that a sustained 25% US tariff could cut 40 bps from the Indian economy’s GDP growth. However, they suggest the impact might be less severe since other nations also face higher tariffs. ANZ predicts a GDP growth of 6.1% for the Indian economy, below the Reserve Bank of India’s (RBI) 6.5% estimate and the finance ministry’s projected range of 6.3-6.8%. On Wednesday, Trump declared that, effective August 1, 2025, Indian goods entering the US will face a 25% US tariff, along with an additional, unspecified penalty for India’s energy and defense deals with Russia. In a Truth Social post, Trump criticized India’s trade barriers as highly restrictive. The Indian government responded by stating it is assessing the US tariff’s impact and is committed to negotiating a fair, balanced, and mutually beneficial trade agreement. Economic Slowdown and Policy Responses After achieving a strong 7.4% GDP growth in the final quarter of 2024-25, the Indian economy is anticipated to slow in the April-June period of 2025-26. The RBI projected a 6.5% growth for this quarter, with official data due from the statistics ministry by late August. Many economists view the RBI’s 6.5% forecast as optimistic, particularly as the central bank has aggressively cut interest rates to support the Indian economy amid low inflation. The US tariff announcement further complicates these efforts. HSBC economists Pranjul Bhandari and Aayushi Chaudhary estimate that if the US tariff burden is evenly split between Indian producers and US consumers, it could reduce the Indian economy’s growth by 0.3 percentage points. They project a 6.3% growth rate for 2025-26 but caution that additional penalties could further weaken growth, alongside indirect effects like reduced investment and capital inflows. One percentage point equals 100 bps. Barclays forecasts a 30 bps growth reduction due to the US tariff, while Nomura predicts a slightly lower 20 bps impact from their 6.2% growth estimate. The RBI’s Monetary Policy Committee (MPC) will meet next week to discuss interest rates. In 2025, the MPC has already lowered the repo rate by 100 bps to 5.5%, with retail inflation at 2.1% in June, near the lower end of the RBI’s 2-6% target range. This has fueled market expectations of further rate cuts to bolster the Indian economy. Emkay Global Financial Services estimates that India’s exports to the US could drop by $30-33 billion if the US tariff exceeds 25%. In 2024, India-US goods trade reached $129.2 billion, with India exporting $87.4 billion in goods like electronics, pharmaceuticals, textiles, and jewelry, and importing $41.8 billion, leading to a $45.7 billion US trade deficit.