How will Donald Trump's reciprocal tariffs impact India GDP growth rate? This is what RBI has said

The impact of US President Donald Trump's policy of reciprocal tariffs was evident when the Reserve Bank of India (RBI) slashed its projection of GDP growth rate from 6.7% to 6.5%. Though Central Bank governor Sanjay Malhotra did not blame it on the reciprocal tariffs directly, he must have been under the pressure of reduced exports, decreased consumption and a higher inflation rate when he announced the GDP projection. He told journalists, "Growth projection for this fiscal has been marked down by 20 basis points, reflecting global trade and policy uncertainties."

RBI GDP projection to 6.5%

The RBI has estimated the growth rate for the first quarter of FY 2025-26 at 6.5%, the second quarter at 6.7%, the third quarter at 6.6%, and the fourth quarter at 6.3%. Earlier in February, the RBI projected a growth rate of 6.7% for the first quarter, 7% for the second quarter, and 6.5% for the third and fourth quarters.

Gems and jewelry exports may fall

Though India is in a comfortable position with a forex reserve of $676.3 billion on April 4, days ahead of the imposition of 26% of the US tariff, this may come down considerably, with exports to the US most likely to fall. Washington accounts for about one-third of India's $32 billion gem and jewellery exports, which may fall because of the imposition of 27% of the tariff.

Donald Trump to impose tariff on pharmaceutical

India exported pharmaceutical products worth $12.72 to the US in FY 2024. The sector and the policymakers were happy when the Trump administration did not impose a tariff on them. However, the happiness proved to be short-lived as Donald Trump soon announced that he would impose a tariff on pharmaceuticals like "never before".

Auto exports to plummet?

Similarly, India exported auto parts worth $6.79 billion to the US   in FY 2024, it will suffer considerably due to the imposition of a tariff of 25%. Indian currency will also come under pressure, it is evident by the fact that it fell 60 paise to 85.8350 against the US Dollar, the worst fall since January 13. 

The RBI has lowered its projection of inflation from 4.2% to 4%, and analysts believe, it is likely to go further down. Though the RBI was cautious while announcing the Monetary Policy and slashed the repo rate (the rate at which it lends money to commercial banks) by a meager 25 basis points, much less than the market expectation, inflation is sure to go up. 

India may become dumping ground

With reduced exports, imports and weak currency, India may get further blow as countries like China and Vietnam may dump their products at much cheaper rates. While China will have to pay a tariff of 104%, Vietnam has been slapped with a tariff of 46%. The US has a trade deficit of $123 billion with Hanoi. 

The RBI Governor accepted the impact of the US tariffs, though he did not name the country. He said, "The global economic outlook is fast changing. The recent trade tariff-related measures have exacerbated uncertainties clouding the economic outlook across regions, posing new headwinds for global growth and inflation."

He said further, "Financial markets have responded through sharp fall in dollar index and equity sell-offs with significant softening in bond yields and crude oil prices."