How will Donald Trump’s reciprocal tariffs affect India’s GDP growth rate? This is what RBI says
The Reserve Bank of India estimates growth rate of 6.5% in the first quarter of fiscal 2025-26, 6.7% in the second quarter, 6.6% in the third quarter and 6.3% in the fourth quarter.
GDP (representative image)
When the Reserve Bank of India (RBI) cut its forecast for GDP growth from 6.7% to 6.5%, the impact of U.S. President Donald Trump on reciprocity tariffs is obvious. Although Central Bank Governor Sanjay Malhotra did not blame it directly on reciprocal tariffs, when he announced his GDP forecast, he must have been under pressure to reduce exports, lower consumption rates and higher inflation rates. “The growth forecast for this fiscal has been marked at 20 basis points, reflecting global trade and policy uncertainty,” he told reporters.
RBI GDP projection to 6.5%
The Reserve Bank of India estimates growth rate of 6.5% in the first quarter of fiscal 2025-26, 6.7% in the second quarter, 6.6% in the third quarter and 6.3% in the fourth quarter. In early February, the Reserve Bank of India expected growth rate of 6.7% in the first quarter, 7% in the second quarter and 6.5% in the third and fourth quarters.
Gem and jewelry exports may be lowered
Although India’s foreign exchange reserves on April 4 were $676.3 billion, which could be significantly reduced in the days leading up to 26% U.S. tariffs, exports to the United States are most likely to fall. Washington accounts for about one-third of India’s $32 billion gem and jewelry exports, which could fall due to the 27% tariff.
Donald Trump imposes tariffs on drugs
India exported $12.72 worth of pharmaceutical products to the United States in fiscal year 2024. The industry and policy makers are happy when the Trump administration doesn’t impose tariffs on them. However, it turned out that Donald Trump soon announced that he would impose tariffs on drugs like “never moving forward”, which proved to be short-lived.
Automatic exit to fall?
Similarly, India exported $6.79 billion worth of auto parts to the United States in fiscal 2024, and it will suffer a lot due to the 25% tariff. The Indian currency will also be under pressure, which is clearly the worst fact that the dollar has dropped by 60 Pas to 85.8350 since January 13.
The RBI inflation forecast has dropped from 4.2% to 4%, and analysts believe it may drop further. Although the Reserve Bank of India is prudent in announcing monetary policy and cutting the repurchase rate (the interest rate for borrowing money from commercial banks), the price is a trivial 25 basis points, much lower than market expectations, inflation will certainly increase.
India could be a garbage dump
As imports and exports decrease, imports and currencies weaken, India may hit further as countries such as China and Vietnam may dump products at a cheap pace. Vietnam’s tariffs have been hit 46% despite China having to pay 104%. The U.S. trade deficit with Hanoi is $123 billion.
The governor of the Reserve Bank of India accepted the influence of U.S. tariffs, although he did not name the country. “The global economic outlook is changing rapidly. Recent measures related to trade tariffs have exacerbated uncertainty, clouded the economic outlook across the region and brought new headwinds to global growth and inflation,” he said.
He further said: “Financial markets responded through a sharp decline in the U.S. dollar index and stock sell-offs, with bond yields and crude oil prices significantly lowered.”
