Mumbai: Reserve Bank of India Governor Sanjay Malhotra has addressed concerns regarding the impact of increased US tariffs on Indian goods, indicating that damage will be minimal. During the FIBAC 2025 conference, he emphasized the central bank’s proactive stance in supporting the Indian economy through measures like a reduced repo rate and sufficient liquidity, while also noting the ongoing structural reforms and trade agreements being pursued to mitigate external shocks.
US Tariffs and India’s Economic Resilience
The recent announcement of heightened tariffs on Indian exports by the United States has raised questions about potential setbacks for the Indian economy. Sanjay Malhotra, the Governor of the Reserve Bank of India (RBI), remains optimistic, describing the tariffs as having a minimal projected impact. He stated, “Now there has been another additional 25% tariff, making it 50%. It’s yet to kick in, and we are hopeful that tariff negotiations will play out and the impact will be minimal.” This reassurance comes amid ongoing discussions about the potential fallout from these tariffs, which specifically affect approximately 55% of India’s exports, including crucial sectors like gems and jewellery, textiles, and micro, small, and medium enterprises (MSMEs).
Understanding the broader implications of these tariffs requires recognizing that a significant portion of Indian exports—around 45%—remains unaffected by the new tariff restrictions. This nuanced perspective provides a cushion for the economy, allowing it to absorb shocks more effectively.
Predicted Growth Decline and Proactive Measures
Despite Governor Malhotra’s optimism, economists estimate that India’s growth rate could decline by 20-30 basis points in the fiscal year 2025-26 due to the tariffs, a projection that national policymakers are taking seriously. In response to these external challenges, Malhotra emphasized that the RBI has been proactive in implementing financial strategies. “On its part, RBI has pursued an easing cycle, lowering the repo rate by 100 basis points since February,” he noted, demonstrating a commitment to fostering economic growth.
The RBI’s actions extend beyond mere interest rate adjustments. The central bank has made an effort to ensure ample liquidity in the banking sector, aiming to provide support to industries that could be heavily impacted by the new tariffs. Malhotra reiterated RBI’s dedication to “whatever else is required” to sustain economic resilience in the midst of external pressures.
Consumer Price Inflation and Macro-Economic Stability
One of the standout achievements of the Indian economy recently has been the effective management of inflation. Malhotra cited the decline in inflation rates as foundational to India’s macroeconomic resilience despite various global shocks ranging from skyrocketing food prices to geopolitical instabilities. Significantly, India’s retail inflation dropped to 1.55% in July, the lowest figure recorded since June 2017.
On August 6, the RBI’s monetary policy committee projected a lowered consumer price inflation rate of 3.1% for FY26, down from a previous 3.7%. This remark underscores a central theme in Malhotra’s address: informed monetary policy actions combined with governmental supply-side measures have been paramount in curbing broad-based price pressures. “The primary objective of monetary policy in terms of price stability has significantly contributed to the strength of India’s macroeconomic fundamentals,” he stated, tightening the focus on effective economic stewardship.
Future Outlook and Strategic Planning
The importance of strategic planning extends to the RBI’s ongoing efforts to review its inflation-targeting framework as the current one approaches its renewal in seven months. Malhotra indicated that the central bank remains unwavering in its commitment to maintaining price stability while also fostering growth. “We will continue to conduct monetary policy with the primary objective of price stability keeping in view the objective of growth,” he affirmed.
The proactive measures being undertaken paint a comprehensive picture of an economy poised to navigate uncertainty with the proper tools and strategies. For example, even during the quiet period just before the COVID-19 pandemic, timely adjustments in the repo rate by the RBI helped stimulate growth when inflation was under control and market conditions were challenging.
As India’s economic landscape evolves, bolstered by prudent financial oversight and strategic trade negotiations, stakeholders remain hopeful that the country can withstand external shocks—such as increased tariffs—while continuing to maintain a robust economic growth trajectory.
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Original source: www.livemint.com
