With Trump tariff heat on, RBI and brokerages recalibrate India’s FY26 outlook

As Donald Trump’s steep 26% import duty on Indian goods came into force on Wednesday, Reserve Bank of India Governor Sanjay Malhotra stepped forward with a clear warning: the global trade order is under pressure, and India will not be immune.

Sounding the alarm on deepening trade frictions, Malhotra confirmed the RBI had lowered its GDP growth forecast for FY26 from 6.7% to 6.5%. The central bank also shifted its policy stance to “accommodative,” signaling room for rate cuts to support growth if needed.

"The dent on global growth due to trade frictions will impede domestic growth," Malhotra said, setting the tone for what could be a turbulent fiscal year.

The Reserve Bank of India’s downward revision of India’s FY26 growth forecast—from 6.7% to 6.5%—was echoed by global financial institutions, each factoring in the fallout from the newly implemented US tariffs.

UBS cut its forecast from 6.3% to 6%, attributing a 25 basis point drag to the tariff hikes. Goldman Sachs trimmed its estimate to 6.1%, while Citi expects a 40 bps hit from direct and indirect tariff effects. QuantEco Research projected a 30 bps impact, and HSBC along with UBS Securities warned of a 20–50 basis point drag this fiscal year.

Announcing the Monetary Policy Committee’s decision, Malhotra said the new US tariffs could dent global economic momentum, with spillover effects hitting India’s exports and domestic growth. “The dent on global growth due to trade frictions will impede domestic growth,” he noted, adding that India’s net exports are likely to suffer, further straining the external sector.

Malhotra warned that rising uncertainty around global trade policies may discourage both consumption and investment. “Merchandise exports will be weighed down by global uncertainties, while services exports are expected to remain resilient. Headwinds from global trade disruptions continue to pose downward risks,” he said.

He also highlighted the challenge of gauging the exact impact of the tariff escalation. “There are several known unknowns,” Malhotra said, referencing pending policy measures such as the Foreign Trade Agreement under discussion with the US.

Despite the warnings, Malhotra remained cautiously optimistic. India’s domestic manufacturing strength and ongoing initiatives like the Bilateral Trade Agreement, Production Linked Incentive (PLI) schemes, and the Make in India programme could help soften the blow.

He emphasized that inflation projections remain in check, assuming a normal monsoon, though “lingering global market uncertainties pose upside risks to the inflation trajectory.”

“We are monitoring the situation closely and will take appropriate measures to ensure the stability of the economy,” he said.