The economic growth of India could decrease by 20-40 basic points in the current financial year due to the latest US tariffs, which would cause deeper interest rate cuts by the Central Bank, analysts said.
The president of the United States, Donald Trump, slapped a reciprocal rate of 26 percent over India on Wednesday, threatening the estimate of the Bank of the India Reserve (RBI) of the economic growth of 6.7pc in 2025-26 and the prognosis of the Government’s economic survey of 6.3pc-6.8pc.
After the rates, Goldman Sachs reduced its growth estimate to 6.1pc from 6.3pc. Citi predicted a 40 BPS drag in directly and indirectly growth, while Quanteco Research based in Mumbai estimated a 30 BPS success.
In addition, and inflation is expected to average 4.2 percent this financial year, near the objective of the RBI, the Central Bank reduced interest rates for the first time in five years in February. It is expected that with another 25 BPS cut at 6.00 percent at the end of its meeting from April 7 to 9, according to a Reuters survey.
However, while the survey showed that economists waited only one more cut after that, at a rate of repo policies of 5.75 percent in August, before a prolonged pause, US tariffs have caused a rethinking of those estimates.
Goldman, Citi and Quanteco Research had also predicted only one or two more cuts this year, but now they expect 75 BPS of cuts this financial year, carrying the 5.5pc policy rate, which would be the lowest since August 2022.
“This would be an appropriate risk minimization strategy in the face of the greatest downward risks for growth compared to the much lower rising risk for inflation,” said the chief economist of the India of Citi, Samiran Chakraborty, in a note on Thursday night.
The dynamics of growth influence “will open the policy space so that the MPC (monetary policy committee) support growth, while remained focused on aligning inflation with the objective,” said the MPC in February.
The growth of the Indian economy is expected to have decreased to a minimum of four years of 6.5 percent in the financial year that ended on March 31, since urban demand weakened due to high inflation, adjusted liquidity and more difficult RBI rules that slow down the growth of loans through personal loans and credit cards.
However, the Central Bank has significantly relieved the liquidity conditions since the new governor Sanjay Malhotra assumed the position in December. The plans to even harden bank regulations have also been delayed.
Along with this, the Government announced a fiscal relief for all Indians who earn up to 1.2 million rupees per year in their annual budget in February.
The tax cuts and the flexibility of monetary policy will help domestic demand, said a government source that asked not to be identified.
These should act as shock absorbers for the economy, said the source, adding that India does not need a stimulus throughout the economy at this stage, but the specific stress of the sector could be addressed through specific measures.
“The rewriting of the commercial rules would lead to the political leaders worldwide to analyze a lot to revive internal consumption and demand,” said Vivek Kumar, a Quanteco Research economist.
For India, this could be through interest rate cuts and a weaker currency, he said.
