Goldman Sachs trims India's GDP forecast on Trump's 25% tariffs

Goldman Sachs lowered India's economic growth forecast after Donald Trump imposed a 25 per cent tariff

Global brokerage Goldman Sachs has marginally lowered India’s economic growth forecast as the country prepares to face the impact of US President Donald Trump’s proposed 25 per cent tariffs.

 

Trump said that India has tariffs that are "among the highest in the World," and are the most "strenuous and obnoxious non-monetary trade barriers of any country." He also threatened further penalties for its imports of Russian energy. However, India remains firm on its Russia ties with a broad consensus on avoiding retaliation and resorting to negotiations.

 

Brokerages, however, are hopeful that the final tariff may land lower, 15 to 20 per cent, as both nations continue to negotiate a solution. 

 

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The latest tariff imposition has led analysts at Goldman Sachs to trim India’s real GDP growth forecasts by 0.1 percentage point for calendar year 2025 (CY25) and 0.2 percentage point for CY26, to 6.5 per cent and 6.4 per cent year-on-year (Y-o-Y), respectively.

 

The rural consumption recovery is sustaining, given strong agricultural activity reflected in higher sowing of summer crops and lower food inflation, which is likely boosting real rural incomes, it said. Amongst urban activity indicators, while the services PMI was strong, air passenger traffic growth has been subdued, it said.  

 

"In our view, some of these tariffs are likely to be negotiated lower over time, and further downside risk to the growth trajectory mainly emanates from the uncertainty channel." A rapid and mutually beneficial resolution of the US-India trade negotiations, or a quicker-than-expected rise in core inflation, could alter this view, Goldman Sachs said. 

 

Further, with downside risks to growth from the tariff-related uncertainty, along with a generally benign inflation trajectory, Goldman Sachs expects the Reserve Bank of India (RBI) to cut the repo rate by another 25 basis points in the fourth quarter (Q4) this year. In the August meet, RBI is likely to remain status quo as per a Business Standard poll, with all analysts expecting a further reduction in the 2025-26 (FY26) inflation forecast.  

 

Goldman Sachs, too, lowered their inflation forecasts by 0.2 percentage points in CY25 and FY26 to 3.0 per cent Y-o-Y each, given lower tracking of vegetable prices. "Our inflation forecasts imply that immediate inflation risks in India are contained." In the August meeting, they expect the RBI to remain on hold at the August meeting, after a front-loaded 50bp repo rate cut in June.