India’s economic growth is likely to slow down due to new tariffs imposed by the United States. Analysts estimate a decline of 20 to 40 basis points in the ongoing financial year. President Donald Trump recently announced a 26% reciprocal tariff on Indian goods. This could affect the Reserve Bank of India’s (RBI) projected growth of 6.7% for 2025-26 and the government’s forecast of 6.3% to 6.8%.
In response to the tariffs, Goldman Sachs has revised its growth estimate down to 6.1% from 6.3%. Citi forecasts a 40 basis points drag on growth, while QuantEco Research predicts a 30 basis points decline. With inflation expected to stabilize around 4.2%, close to the RBI’s target, the central bank has already cut interest rates for the first time in five years. Economists predict an additional cut to 6.00% at the upcoming meeting on April 7-9.
However, these tariffs have changed expectations. Initially, analysts anticipated one additional rate cut this year. Now, they foresee a total reduction of 75 basis points, lowering the policy rate to 5.5%. This level would be the lowest since August 2022. Citi’s economist Samiran Chakraborty noted that this strategy would help mitigate risks to growth while keeping inflation in check.
Amid these economic challenges, the Indian government has implemented tax relief for individuals earning up to 1.2 million rupees annually. This measure, combined with ongoing efforts to ease monetary policy, will support domestic demand. Officials suggest there is no need for broad economic stimulus measures. Instead, they will address sector-specific issues with targeted approaches. Overall, these strategies aim to strengthen India’s economic position in light of global uncertainties.