RBI Governor Malhotra: Trump’s Tariff Impact May Lead to Softer Inflation in India

Reserve Bank of India Governor Sanjay Malhotra recently spoke to The Times of India about the economic implications of US President Donald Trump’s tariff policy. These trade measures, introduced as reciprocal tariffs, have led to escalating tensions and retaliatory responses from several nations, including China. India, however, has chosen a path of dialogue, actively engaging with the US and nearly 75 other countries to explore trade opportunities and avoid severe disruptions.

Tariffs May Reduce Inflation Despite Import Price Pressures

According to Malhotra, tariffs introduced by the US are likely to have 2 competing effects on India. On one hand, they may push up the cost of imported goods, contributing to inflation. On the other hand, a decline in global demand triggered by the trade war could lead to softer prices. In his view, the latter effect is expected to outweigh the former. As a result, India could experience a net decline in overall inflation in the coming quarters.

Read More: How Trump’s 26% Reciprocal Tariffs Could Impact the Indian Stock Market? 

Moderate Growth Impact Expected

Despite the cautious optimism on inflation, the RBI has acknowledged some pressure on economic growth. In its most recent Monetary Policy Committee meeting, the central bank trimmed India’s growth forecast by 20 basis points to 6.5%. Malhotra noted that while the impact of tariffs on growth will be moderate, it remains a significant risk that policymakers are closely monitoring.

India Urged to Diversify Trade Ties

In light of the current global uncertainties, Malhotra stressed the importance of diversifying India’s trade relationships. He suggested that relying heavily on a small set of countries could increase vulnerability. Instead, India should focus on expanding its export basket both geographically and in terms of products.

He further added that improving productivity and efficiency within the corporate sector is crucial for achieving long-term resilience. "The corporate sector needs to focus on improving productivity and efficiency. Simultaneously, it’s crucial to diversify and not be overly dependent on just one, two, or three countries. This is the time for diversification of the trade basket, country-wise and product-wise, focusing on our strengths," he told ToI.

Outlook Ahead of June’s MPC Meeting

When asked about the RBI’s policy stance ahead of the upcoming Monetary Policy Committee meeting in June, Malhotra pointed out that the central bank had already shifted to an 'accommodative' stance. This, he explained, signals a potential status quo or even a rate cut, depending on evolving macroeconomic indicators.

Conclusion

Governor Malhotra’s comments provide insight into how global developments, such as President Trump’s tariff measures, are influencing India’s economic outlook. While there are concerns about trade disruptions and imported inflation, the overall moderation in global demand could help temper domestic price pressures. As India navigates this uncertain terrain, the emphasis is on strategic diversification, internal efficiency, and a responsive policy approach.

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