Global investment bank Goldman Sachs has lowered India’s growth projections for 2025 and 2026 due to escalating trade tensions with the United States, particularly following the imposition of a 25% tariff on Indian goods by President Donald Trump. The uncertainty surrounding this move could have a more significant impact on India’s growth than the tariffs themselves.
Growth Forecasts Revised Downward
- Goldman Sachs now predicts India’s real GDP to grow at 6.5% in 2025, down from the earlier projection of 6.6%.
- For 2026, the growth forecast has been revised to 6.4%, reflecting a 0.2 percentage point decrease year-on-year.
Unusually Low Inflation — A Double-Edged Sword
- Goldman Sachs has also lowered its consumer price inflation (CPI) forecast for CY25 and FY26 to 3.0% due to easing vegetable prices.
- However, the report highlights that such low inflation levels are uncommon in India and could be easily disrupted by external factors like food price shocks or currency fluctuations.
Tariffs vs. Uncertainty
The report emphasizes that the uncertainty caused by the trade tensions may have a more detrimental impact than the tariffs themselves. The lack of clarity on the duration and potential escalation of tariffs is creating unease among global investors and exporters.
Key Variables for Economic Outlook
- Potential breakthrough in the US–India trade standoff.
- Monitoring core inflation, especially its movement towards the 4% threshold.
RBI Holds Steady
The Reserve Bank of India (RBI) has maintained the repo rate at 5.5% and retained its FY26 GDP growth forecast at 6.5%, indicating confidence in the economy’s stability. The RBI has also revised its inflation forecast downward to 3.1% for FY26, aligning with Goldman’s projections.
Outlook
Goldman’s cautious revision underscores global investors’ concerns over trade tensions and low inflation rates. India’s ability to navigate tariff issues and sustain growth without inflationary pressures will be critical in the upcoming months.
Key Takeaways for Competitive Exams
- Goldman Sachs lowers India’s growth forecast for 2025 and 2026 due to US tariff tensions.
- Uncertainty from trade policies may impact India’s growth more than the tariffs themselves.
- Low inflation levels in India could be vulnerable to external shocks.
- Monitoring core inflation and resolving trade disputes are key factors for India’s economic outlook.
- RBI maintains a stable stance amidst global economic uncertainties.
