India will still remain the fastest growing economy in the world despite the downward revision of growth projections by 20 bps due to the impact of the trade war, observed Reserve Bank of India (RBI) Governor Sanjay Malhotra, according to the minutes of the last MPC meeting released on Wednesday.
“I believe that robust domestic demand will cushion the impact of external headwinds as in the past. At this juncture, the growth projection for 2025-26 at 6.5 per cent, a downward revision of 20 basis points from the February 2025 policy, is appropriate,” Mr. Malhotra, who heads the Monetary Policy Committee (MPC), emphasised.
“Although even at 6.5% growth, India would continue to be the fastest growing major economy, this is lower than what we aspire for,” he stated.
The April MPC meeting had voted unanimously to reduce the repo rate by 25bps to 6%, and change the stance to accommodative.
While external MPC member Saugata Bhattacharya mostly sounded neutral, another external member Nagesh Kumar was seen extremely dovish, as per their observations in the minutes. The six-member committee was seen divided on the impact of tariffs on India, Barclays wrote in a note analysing the minutes.
“While most acknowledge that India’s domestic orientation will offer some insulation, the spillover from lower global growth is difficult to escape. Heightened global uncertainty is seen as the biggest headwind to already sub-par growth in India,” Barclays said.
It was also felt that decisive softening of inflation would offer greater confidence of its alignment with the 4% target over the next 12 months. Tariff-related increase in input costs may, at best, be a short-term issue, it was observed. Lower global demand and over capacity among trading partners may, in fact, would result in lower domestic inflation, the MPC members felt.
Mr. Bhattacharya felt if the trade tariff actions were not significantly diluted – global trade and hence growth would slow down materially, likely spilling over into India via external channels, further decelerating India’s growth.
“India’s FY26 external balance might also become a matter of concern. Trends in India’s (goods and services) trade will need close monitoring, and the trade balance will depend inter alia on the responses of domestic households to their consumption – savings decisions if growth does indeed slow. Capital inflows and remittances might also be adversely affected,” he stated.
Published - April 23, 2025 08:56 pm IST
