RBI Governor said: All countries will be affected by US tariffs; The impact on the Indian economy to be less
New Delhi| Concern about deepening trade war after US imposition of retaliatory tariffs has affected the economic outlook in all sectors. Trump tariffs will not only impact economies around the world, but also pose new challenges to exports and inflation. However, the impact of tariffs on India will be less compared to many other countries.
Giving information about the first Monetary Policy Committee (MPC) meeting of the current financial year 2025-26 on Wednesday, RBI Governor Sanjay Malhotra said, India’s total exports contribute 12 per cent to GDP, while exports to the US are less than 2 per cent. In contrast, the share of its exports in China’s GDP is about 19 per cent, that of Germany is 37 per cent and that of the European Union (EU) is more than 30 per cent. Similarly, exports from countries like Taiwan and Iran contribute more to their GDP.
Moreover, tariffs are less important for India, as our trade surplus with the US is lower than other countries. This gives India a comparative advantage in terms of US tariffs. However, it is true that tariffs can slow down the growth rate.
The Governor said, the US dollar has fallen amid the turmoil in the world. Returns on bonds have decreased. Stock markets are declining. Crude has fallen to its lowest level in almost four years. In such a situation, central banks are working cautiously on the basis of priorities.
Concern about the impact of the tariff war on growth more than inflation
As far as the impact of US tariffs on India is concerned, we have given our assessment. We have reduced the growth rate estimate for 2025-26 by 0.20 per cent. The main reason for this is global uncertainty. There is more concern about the impact of the tariff war on economic growth than on inflation.
UPI: Customers will now be able to pay more
RBI has approved National Payments Corporation of India (NPCI) to increase the limit of ‘Person-2-Merchant (P2 M) transactions through UPI. After this step of the Central Bank, the way for big payments through UPI has opened. However, the limit for Person-2-Person (P2 P) UPI transactions will remain at Rs 1 lakh as before. That means a person can send only a maximum of Rs 1 lakh at a time to another person through UPI.
Currently under transactions from individual to traders (P2 M) the customer can pay a maximum of Rs 2 lakh at a time in cases like capital markets and insurance. At the same time, the payment limit for tax, educational institutions, hospitals and initial public offering (IPO) is Rs 5 lakh.
The Governor said, as per the needs of the economy, NPCI, in consultation with banks and other stakeholders associated with the UPI environment, may revise the UPI limit based on the changing needs of the user. Banks will continue to have the discretion to set their internal limits within the declared limits of NPCI. Appropriate security measures shall be taken to mitigate the risks associated with a higher threshold.
Repo rate: expected to decline by 0.50 per cent further by December
Given the RBI’s accommodative stance, economists believe there could be a further 0.50 per cent repo rate cut by December, 2025. This would reduce it from the current 6 per cent to 5.5 per cent. Upasana Bhardwaj, Chief Economist, Kotak Mahindra Bank, said, global turmoil is increasing, which is affecting the Indian economy. To deal with this, RBI will have to further cut the repo rate. There is scope for another one percent reduction this year. Sriram Ramanathan, CIO (Fixed Income), HSBC Mutual Fund, said, RBI now believes that the target of 4 per cent of core inflation can be achieved. This gives scope to the central bank to focus on increasing the pace of the economy. We expect the repo rate to drop to 5.5 per cent by the end of 2025.
Foreign exchange reserves: at a five-month high
The country’s foreign exchange reserves increased by $10.9 billion to $676.3 billion as of April 4, the highest level in five months, RBI reported. This stock has increased for the fifth consecutive week.
$33 billion in exports to the US in 2024
India has exported about $33 billion worth of goods to the US in 2024. These include the highest exports of pharma products worth $8.1 billion. Telecommunications equipment worth $6.5 billion, precious stones worth $5.3 billion, petroleum products worth $4.1 billion have also been exported. India has imported $18.1 billion worth of products, including $4.5 billion worth of crude, from the US in 2024.
Some good signs for GDP, the growth rate will be 6.5 per cent
RBI Governor said, amid global challenges, some good signs are also visible for the domestic economy. The prospects of the agriculture sector are bright due to the better condition of reservoirs and the forecast of good crop production in the current financial year. There is improvement in manufacturing activities. Business expectations are strong. The service sector is also performing combatively. Investment activities have increased. The government is increasing spending on infrastructure with higher capacity utilization. Investment is expected to increase due to better books of banks and companies and improvement in financial conditions.
