Goldman Sachs trims India’s growth outlook on tariff worries, warns of rare low inflation risk

Goldman Sachs has dialled down its growth forecast for India, citing renewed concerns over trade tensions with the United States following President Donald Trump’s move to impose a 25% tariff on Indian goods. The investment bank now expects real GDP to grow 6.5% in calendar year 2025, a 0.1 percentage point cut from its earlier estimate, and 6.4% in 2026, down 0.2 percentage points year-on-year.

While the economic impact from the tariff move is expected to evolve, the report argues that not all the damage may be permanent. “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,” it says.

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Inflation, however, seems to be heading in the opposite direction. Goldman revised its inflation forecast down by 0.2 percentage points for both CY25 and FY26 to 3.0%, citing easing vegetable prices. But the report throws in a caution: such low inflation levels are historically uncommon for India and could be easily disrupted. “The projections lie in the left tail of India's historical inflation distribution,” the report notes, warning that they’re vulnerable to shocks.

The brokerage highlights that the bigger drag on growth may not be the tariffs themselves but the lack of clarity around them. “Further downside risk to the growth trajectory mainly emanates from the uncertainty channel,” it reiterates -- pointing to how unpredictable policymaking can rattle investor confidence and business decisions.

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Goldman identifies two big swing factors going forward. One, a quick breakthrough in the US-India trade standoff, and two, any signs that core inflation is heating up again, particularly if it pushes toward the 4% mark.

Meanwhile, the Reserve Bank of India has chosen to stay the course. In its policy decision on Wednesday, the central bank held the benchmark repo rate steady and stuck to its FY26 GDP growth forecast of 6.5%. It also sharply revised its CPI inflation forecast for FY26 down to 3.1%, from 3.7% earlier, a sign that the RBI, too, is banking on a phase of low inflation.

With inputs from ANI