Trump tariff decision transitionary; economists rule out rate cut by RBI
India Inc says the story is not over yet and that everything will work out well as India and the US have good relations. Central bank unlikely to cut rates till December to boost growth, according to experts
There will be an incremental impact of the tariffs, particularly on clothing/textiles, jewellery and phones sectors
Image: Indranil Mukherjee / AFP
Corporate India believes that US President Donald Trump's announcement to impose 25 percent tariff on goods imported from India is transitionary and clarity could emerge in the coming weeks, considering that a trade deal between the two countries is expected to be signed soon.
Mahindra Group’s chief executive and MD Anish Shah says the “story is not over as yet”. “The two countries [US and India] have good relations. Everything will work out well,” he told CNBC TV18 on Thursday. On a case for a renegotiation of tariff, he added, “We are still a little way from the end stage, so I’m positive that things will work out well.”
There will be an incremental impact of the tariffs, particularly on jewellery, clothing/textiles and phones sectors, according to an impact note on tariffs issued by Axis Bank’s chief economist Neelkanth Mishra. By Thursday’s closing, steel and pharmaceutical stocks were the hardest hit.
The tariff announcement has probably come at the wrong time for India. India Inc’s Q1 June-ended revenue growth has been largely muted—Crisil Research has pegged it at just 4 percent to 6 percent—and there is little clarity whether local consumption demand will pick up in the upcoming festive season, with credit growth at a three-year-low.
No immediate rate cut coming
Economists Forbes India spoke to are ruling out chances of the Reserve Bank of India (RBI) considering more rate cuts to boost economic growth. In fact, we may not see any rate action until December, they said.
“The problem is not whether the RBI has space to cut interest rates, the question is, is there a need to cut rates? We do not expect a change in rate decision immediately. The RBI has done enough. It is now time to wait and see how it flows into the system,” Sakshi Gupta, principal economist at HDFC Bank, tells Forbes India.
RBI has cut the repo rate in three consecutive monetary policy meetings in 2025—by 100 basis points cumulatively. “The RBI will only react to what it knows,” she says.
Bank of Baroda’s chief economist Madan Sabnavis says the RBI had already lowered interest rates enough (in the recent monetary policies). There are expectations of a trade deal taking place and a negotiation for lowering of tariff.
“We do not forecast any change in repo rates at the next meeting. The RBI forecast for inflation will need to be watched over the next three quarters, he said. If the inflation rate remains near 4 percent by Q4FY26, then the current repo rate might be enough. But the RBI will get a clearer look on growth and inflation towards the end of the year.
Sabnavis said net profit growth for corporate India in Q1FY26 was seen at 14 to 15 percent, which was near last year’s levels. He has pegged India’s FY26 GDP growth at 6.4 percent to 6.6 percent, while HDFC Bank’s Gupta has pegged it at 6.3 percent for the same period.
The RBI’s Monetary Policy Committee is set to announce its rate decision on August 6. It comes in the wake of the US Federal Reserve decision of keeping interest rates on hold for the fifth consecutive time in the 4.25 to 4.5 percent level on July 30.
Short-term phenomenon
Axis Bank’s Mishra estimates the tariffs would be $18 billion higher than before April. He says: “There may be scope for sector-specific fiscal support in the future.”
Harsha Vardhan Agarwal, president of Ficci, says “while this [tariff] move is unfortunate and will have a clear bearing on India’s exports, we hope that this imposition of higher tariffs will be a short-term phenomenon and that a permanent trade deal between the two sides will be finalised soon”.
“India and US have a long-standing partnership, which is strengthened by our deepening engagement across an array of areas from technology to defence to energy and advance manufacturing… Ficci is confident that following the detailed deliberations that are currently underway, we will see beneficial outcomes for both countries when the contours of the final trade agreement will emerge,” Agarwal says.