Tariff war: RBI more worried about its impact on growth than inflation

RBI, however, lowered retail inflation estimate to 4%, 20 basis points lower than previous estimate for the current financial year.

Mumbai: Amid the ongoing global tariff war, Reserve Bank Governor Sanjay Malhotra on Wednesday said he is more worried about its impact on growth than inflation.

Speaking to the media after presentation of the first bi-monthly monetary policy for the current financial year, Malhotra said, RBI has reduced the growth forecast for 2025-26 by 20 basis points to 6.5 per cent.

As far as the impact of US tariff on India, he said, "We have given our assessment as you can see, the growth rate, we have reduced by 20 basis points this year, primarily arising out of uncertainties." On the inflation front, he said, "it can actually move both ways, because of the surplus, because of the demand that is going to shrink as a result of the trade tariff friction. It may help on the inflation front".

Besides, he said, crude prices have also gone down.

RBI, however, lowered retail inflation estimate to 4 per cent, 20 basis points lower than previous estimate for the current financial year.

"More than inflation, we are concerned about its (tariff hike) impact on growth," he said.

Last week, US President Donald Trump announced the imposition of reciprocal tariffs on 60 countries, including India, effective April 9. India has attracted 26 per cent reciprocal tariff over various products, including shrimp, carpet, medical devices and gold jewellery.

The US has claimed that American goods face 52 per cent duty in the Indian market. A new tariff policy was designed to reduce the US trade deficit and boost domestic manufacturing.

From 2021-22 to 2023-24, the US was India's largest trading partner. The US accounts for about 18 per cent of India's total goods exports, 6.22 per cent in imports, and 10.73 per cent in bilateral trade.

With America, India had a trade surplus (the difference between imports and exports) of $35.32 billion in goods in 2023-24. This was $27.7 billion in 2022-23, $32.85 billion in 2021-22, $22.73 billion in 2020-21, and $17.26 billion in 2019-20.

In 2024, India's main exports to the US included drug formulations and biologicals ($8.1 billion), telecom instruments ($ 6.5 billion), precious and semi-precious stones ($5.3 billion), petroleum products ($4.1 billion), gold and other precious metal jewellery ($3.2 billion), ready-made garments of cotton, including accessories ($2.8 billion), and products of iron and steel ($2.7 billion).

Imports included crude oil ($4.5 billion), petroleum products ($3.6 billion), coal, coke ($3.4 billion), cut and polished diamonds ($2.6 billion), electric machinery ($1.4 billion), aircraft, spacecraft and parts ($1.3 billion), and gold ($1.3 billion).

The 26 per cent duty is over and above the existing duty being faced by Indian goods in the US.