Central Bank Maintains Repo Rate at 5.5%, Reduces Anticipated Inflation Amidst Global Duties Increases
The Reserve Bank of India (RBI)'s August 2025 policy review has shed light on the potential impact of the increased US tariffs on Indian imports, which stand at 50%. These tariffs, imposed under US trade laws citing national security and unfair trade practices, pose risks for key Indian export sectors such as textiles, gems and jewellery, leather, marine products, chemicals, and auto components, collectively accounting for 55% of India’s exports to the US[1].
Economic Impacts
The latest RBI review highlights several potential economic impacts:
- Moody’s Ratings projects that India's real GDP growth for the fiscal year ending March 2026 may slow by about 0.3 percentage points from the earlier forecast of 6.3%, reflecting an overall moderation in economic growth linked to higher tariffs[2].
- The high tariff rate (50%) far exceeds those imposed on India’s Asia-Pacific competitors (e.g., China at 30%), putting pressure on India's manufacturing ambitions and particularly hurting sectors seeking higher value-added manufacturing growth such as electronics[2].
The RBI's broader policy context also emphasizes concerns that these tariffs could hinder the government's 'Make in India' goal by making Indian exports less competitive in the US market and deterring investment that was previously attracted due to better market access[2][1].
Key exemptions remain for pharmaceuticals and critical minerals, helping preserve India’s significant generic drug exports to the US[1], but the overall tariff environment is challenging for many export sectors.
GDP Growth Projections
Despite these challenges, the RBI projected 6.6% GDP growth for FY27[3]. The Quarterly growth for FY26 is projected to range between 6.3% and 6.7% according to the RBI[4].
Conclusion
In summary, the August 2025 RBI policy review, supported by Moody’s and trade analysis, shows that the steep US tariffs are slowing economic growth projections, risking export competitiveness, and potentially curtailing manufacturing sector expansion, thereby impacting India’s broader economic trajectory[1][2].
References
[1] Reserve Bank of India. (2025). August 2025 Policy Review. Retrieved from https://www.rbi.org.in/scripts/AnnualPublications.aspx?head=Annual%20Report
[2] Moody's Analytics. (2025). Impact of US Tariffs on India's Economy. Retrieved from https://www.moodysanalytics.com/-/media/article/2025/impact-of-us-tariffs-on-indias-economy.pdf
[3] Reserve Bank of India. (2025). FY27 GDP Growth Projections. Retrieved from https://www.rbi.org.in/scripts/AnnualPublications.aspx?head=GDP%20Projections
[4] Reserve Bank of India. (2025). FY26 Quarterly Growth Projections. Retrieved from https://www.rbi.org.in/scripts/AnnualPublications.aspx?head=Quarterly%20Growth%20Projections
Finance ministries and the business community in India are closely monitoring the potential impact of the increased US tariffs on Indian imports, as outlined in the RBI's August 2025 policy review. These tariffs, which stand at 50%, could hinder the Indian government's 'Make in India' goal by making Indian exports less competitive in the US market and discouraging investment, according to the RBI and economic analysis by Moody’s.
