India and US Tariffs: A British Perspective

Introduction

India finds itself grappling with increased US tariffs, yet the Reserve Bank of India, under Governor Sanjay Malhotra’s leadership, remains composed. He insists that these tariffs will have only a limited effect on the nation’s economy.

Economic Measures and Proactive Policies

Malhotra emphasises the RBI’s proactive stance in addressing these economic challenges and vows to bolster growth. The central bank has already eased monetary conditions by lowering the repo rate by 100 basis points since February. To further cushion the economy, ample liquidity has been injected into the banking sector, ensuring growth support even for sectors facing tariff impacts.

The Tariff Scenario

US President Trump’s tariffs are notably high, reaching a considerable 50%. Despite this, about 45% of Indian exports are fortunately unaffected. However, the remaining 55%, including key sectors like textiles, gems, and MSMEs, could potentially face challenges.

Structural Reforms and Future Prospects

The Indian government is not idly watching. Structural reforms are underway, alongside the acceleration of free trade agreements in progress for years. These efforts aim to stabilise the economy and mitigate potential shocks from international pressures.

Inflation in Check

Macroeconomic Resilience

Malhotra credits a decline in inflation for maintaining India’s resilience. Recent figures show retail inflation at a meagre 1.55% in July, the lowest observed since 2017. The monetary policy committee subsequently revised FY26’s consumer price inflation projection to 3.1%.

Retail inflation and monetary policy committee information brings further insights into this sphere.

Proactive RBI Measures

Proactive measures, including timely interest rate adjustments, have thwarted broad price pressure. The central bank emphasises price stability alongside growth objectives. Confidence among consumers and investors remains bolstered thanks to anchored inflation expectations.

Growth Estimates Amidst Tariffs

Economists estimate a potential decline in India’s growth rate by 20-30 basis points for 2025-26 due to tariffs. However, with robust monetary policies, the central bank aims to keep the economy stable, ensuring inflation’s primary objective aligns with nurturing growth.

Conclusion

The RBI remains committed to maintaining macroeconomic stability, keeping inflation in its crosshairs, and fostering growth despite external challenges. As discussions on the inflation-targeting framework continue, India prepares to navigate these economic waters with resilience and strategic foresight.

For further understanding of RBI’s policy considerations, refer to this discussion paper.

Also worth a read is a piece on the RBI’s monetary policy framework here, which outlines the ongoing strategies for inflation control.