Trade Tariffs Cloud India's Economic Prospects Amid Inflation Decline

India's economic growth encounters new headwinds following the U.S. administration's decision to impose a 25% reciprocal tariff on Indian exports, led by President Donald Trump.

Goldman Sachs has adjusted India's GDP growth forecasts, reducing it marginally by 0.1 percentage point for 2025 to 6.5%, and by 0.2 percentage point to 6.4% for 2026.

Although growth estimates are tempered, inflation projections have been lowered due to falling vegetable prices, down by 0.2 percentage points each for 2025 and 2026. Nonetheless, the report warns of volatility, citing rare historically low inflation levels and potential trade negotiation outcomes as pivotal factors affecting the economic landscape.

The uncertainty surrounding bilateral trade relations with the U.S. could lead to diminished business confidence, acting as a drag on economic momentum. Risk factors highlighted include possible trade negotiation delays and unexpectedly high core inflation rates nearing the 4.0% mark. Meanwhile, the Reserve Bank of India has left the repo rate unchanged, sustaining its GDP growth forecast at 6.5% for the present fiscal year, and has significantly revised down the CPI inflation forecast from 3.7% to 3.1% for FY26.

(With inputs from agencies.)