Goldman Sachs Trims India's Growth Forecast Citing U.S. Tariff Uncertainty

India's economic outlook is facing headwinds as global investment firm Goldman Sachs has lowered its growth projection for the nation, a move directly attributed to the uncertainty caused by new tariffs imposed by the U.S. The development comes as a fresh challenge for the Indian economy, which has been demonstrating resilience amidst global volatility.

Goldman Sachs has revised India's real GDP growth forecast for 2025 to 6.5%, a marginal decrease of 0.1 percentage point from its previous outlook. The firm also anticipates a further slowdown in 2026, lowering its projection to 6.4%. The primary reason cited is the recent imposition of a 25% "reciprocal" tariff on Indian goods by U.S. President Donald Trump, a policy that has introduced significant unpredictability into the trade relationship between the two nations.

Key Takeaways from the Goldman Sachs Report

Despite the growth revision, the Goldman Sachs report offers some nuanced perspectives on the Indian economy. The report highlights that while some of the tariffs may be negotiated down over time, the real risk lies in the "uncertainty channel." This uncertainty is clouding investor sentiment and business planning, making it difficult for companies to make long-term investment decisions.

In a positive development, the firm has revised India's inflation forecasts lower, a trend largely credited to softening vegetable costs. Goldman Sachs now expects inflation to be at 3.0% for both 2025 and 2026, though it cautions that these levels are historically low and susceptible to unexpected shocks.

The report's findings contrast with the Reserve Bank of India's (RBI) recent policy announcement. The RBI has opted to keep the repo rate unchanged, holding its own growth projection steady at 6.5% for the current fiscal year. However, it has also revised its consumer price index (CPI) inflation forecast downwards, signaling a degree of caution.

The RBI's decision to maintain the status quo on interest rates indicates a desire to wait and assess the full impact of the new tariffs and other macroeconomic data before making any changes. The central bank's stance suggests a belief that the domestic economy remains resilient enough to withstand external pressures, at least for now.

The U.S.-India trade dispute has become a central point of concern for analysts and policymakers. Trump has justified the tariffs by criticizing India's trade practices and its continued purchase of Russian crude oil. India, in turn, has defended its actions, pointing out that its energy procurement is aimed at ensuring a stable and affordable supply for its population and has also highlighted similar trade with Russia by the U.S. and its allies.

This clash of interests is creating a complex economic environment. While the immediate impact on GDP growth is modest, as indicated by Goldman Sachs, the long-term effects of sustained trade friction and a loss of investor confidence could be more significant. The coming months will be crucial as both countries engage in negotiations to find a path forward. The outcome will not only determine the future of their bilateral trade but also shape the trajectory of India's economic growth in the years to come.

Also Read: Sunjay Kapur’s Death Declared Natural