Reserve Bank of India (RBI) Governor Sanjay Malhotra has voiced concerns about the impact of ongoing global trade tensions on India’s economic prospects, particularly in light of tariff hikes introduced by U.S. President Donald Trump.
Speaking during the latest monetary policy review on Wednesday, Malhotra said that heightened trade-related uncertainty—especially from aggressive tariff measures—could hamper investment decisions and negatively affect India’s net exports.
“Uncertainty itself restrains growth as it discourages businesses and households from investing and spending. Moreover, reduced global growth due to these trade frictions could further weaken India’s economic momentum,” Malhotra explained.
India’s Growth Forecast Lowered
The Monetary Policy Committee (MPC), which reduced the repo rate by 25 basis points to 6%, revised India’s GDP growth forecast for 2025–26 from 6.7% to 6.5%, citing international trade disruptions and inflationary risks.
Despite the rising uncertainties, the central bank does not foresee a major immediate inflation threat but emphasized the need for continued vigilance.
Impact on Inflation and Exports
Governor Malhotra indicated that increased tariffs could dampen India’s export performance. However, he cautioned that several factors—such as export-import demand sensitivity, ongoing discussions around a potential trade agreement with the U.S., and global commodity price trends—make it difficult to quantify the exact impact.
“While trade conflicts may create currency volatility and contribute to imported inflation, a global slowdown could also push commodity prices down, easing inflationary pressure,” he noted.
Navigating Global Uncertainty
Malhotra described the current international economic environment as “exceptionally uncertain,” highlighting the challenge of making policy decisions in a landscape full of mixed signals.
Amid weakening of the U.S. dollar, falling crude oil prices, and corrections in global equity markets, central banks around the world are adjusting their strategies cautiously.
“In India, our approach will continue to prioritize balanced and sustainable growth, with a watchful eye on inflation. We aim to maintain a policy stance that is agile, credible, and grounded in macroeconomic stability,” Malhotra said.
Outlook on Investment and Trade
The RBI Governor pointed out that investment activity in India is gaining strength, backed by robust infrastructure spending, improved bank and corporate balance sheets, and easier financial conditions.
While merchandise exports may face headwinds due to global uncertainties, he remains optimistic about the resilience of India’s services sector.
