India's economic trajectory is facing new headwinds after US President Donald Trump imposed a 25% "reciprocal" tariff on Indian goods. Goldman Sachs revised its outlook, lowering India's real GDP growth projection by 0.1 percentage point for calendar year 2025 (CY25) to 6.5 percent and 0.2 percentage point for calendar year 2026 (CY26) to 6.4 percent year on year.

Key Highlights

• Goldman Sachs cuts India’s GDP growth forecast for 2025 to 6.5% due to U.S. tariff uncertainty.
• Growth projection for 2026 downward revised to 6.4%, while rare low-inflation risk is flagged.

Nevertheless, the report states: "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."

Even as growth slows, the brokerage firm reported that inflation is falling. It lowers India's inflation forecasts by 0.2 percentage points for both calendar year 2025 and fiscal year 2026, to 3.0% year on year.

The drop in prices is largely due to lower vegetable costs. However, the report warns that these projections fall in "the left tail of India's historical inflation distribution," indicating that such low levels are uncommon and may be vulnerable to unexpected shocks.

The consequences aren't limited to headline growth. While some of the imposed tariffs may be negotiated down over time, the overall impact is due to uncertainty. "Further downside risk to the growth trajectory mainly emanates from the uncertainty channel," the report emphasizes how investor sentiment and business planning are hampered by the unpredictability of US-India trade relations.

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The report identifies two major risks that could stymie further easing: a quick and amicable resolution to the US-India trade talks, or a sharper-than-expected rise in core inflation, particularly if it approaches the 4.0% threshold.

However, in its policy statement issued on Wednesday, the RBI maintained the repo rate unchanged. The central bank has also maintained its 6.5% growth projection for the current fiscal year, but has significantly reduced CPI inflation from 3.7% to 3.1% for FY26.