RBI governor Sanjay Malhotra on Wednesday flagged trade and tariff related risks to India’s growth story, while expressing confidence about the resilience of the economy. In his monetary policy review statement, RBI governor said, “The prevailing global uncertainties and tariff related developments are likely to decelerate growth in H2:2025-26 and beyond.”Sanjay Malhotra’s remarks assume significance at a time when the Donald Trump administration has imposed 50% tariffs on Indian exports to the US. Of this 25% are ‘reciprocal tariffs’ and 25% additional tariffs are for India’s crude oil procurement from Russia.While India-US trade deal talks continue, there is an ongoing stalemate on both India’s crude trade with Russia and the red lines India has drawn about opening its agricultural and dairy sectors to US exports.
US tariffs to hit India’s GDP growth?
“Ongoing tariff and trade policy uncertainties will impact external demand. Prolonged geopolitical tensions and volatility in international financial markets caused by risk-off sentiments of investors pose downside risks to the growth outlook,” RBI governor said in his policy statement. He also noted that tariffs will moderate India’s exports.“The MPC also noted that growth outlook remains resilient supported by domestic drivers, despite weak external demand. It is likely to get further support from a favourable monsoon, lower inflation, monetary easing and the salubrious impact of recent GST reforms,” he said.“However, growth continues to be below our aspirations. Even though the growth projection for the current financial year is being revised upwards, the forward-looking projections for Q3 and beyond are expected to be slightly lower than projected earlier, primarily due to trade related headwinds, despite being partially offset by the impetus provided by the rationalisation of GST rates,” he added.RBI noted that the adverse impacts of external headwinds would in part be offset by reforms such as the recent rationalization of GST rates.“Taking all these factors into account, real GDP growth for 2025-26 is now projected at 6.8 per cent, with Q2 at 7.0 per cent, Q3 at 6.4 per cent, and Q4 at 6.2 per cent. Real GDP growth for Q1:2026-27 is projected at 6.4 per cent. The risks are evenly balanced,” Malhotra said.
Why RBI kept repo rate unchanged
The Monetary Policy Committee (MPC), led by Sanjay Malhotra, unanimously decided to keep the repo rate unchanged at 5.5%.“The current macroeconomic conditions and the outlook has opened up policy space for further supporting growth. However, the MPC noted that the impact of the front-loaded monetary policy actions and the recent fiscal measures is still playing out,” he said.“The trade related uncertainties are also unfolding,” he flagged. “The MPC, therefore, considered it prudent to wait for the impact of policy actions to play out and greater clarity to emerge before charting the next course of action,” he said while speaking about the policy rationale.“Despite an external environment that has deteriorated since the August policy, the Indian economy remains poised to register high growth. The sobering of inflation has given greater leeway for monetary policy to support growth without compromising on the primary mandate of price stability. However, the MPC decided to wait for the cumulative impact of recent policy actions to play out before charting the next course of action,” he said.
