She explained that the 27% tariff increase across sectors would reduce demand for Indian exports, but the full impact would depend on how global growth unfolds.
“The second-round effects could be harsher than the first-round impact,” she said, highlighting the role of foreign direct investment (FDI) in shaping India’s long-term economic outlook. If global FDI slows, it could signal a broader investment downturn, further weighing on growth.
Despite these challenges, Bhandari sees room for monetary policy easing, as inflation remains below 4%, allowing the Reserve Bank of India (RBI) to cut rates further. She expects three more rate cuts this year, bringing the total easing cycle to 100 basis points, which could help counter the trade shock and support domestic demand.
Also Read: Trump tariffs could delay fresh investments, hurt job creation: Jaimini Bhagwati of CSEP
Sameer Narang, Head of Economics Research at
ICICI Bank, believes that while India’s exports to the US could take a $8-15 billion hit, the country is still better positioned than China and Vietnam, where tariffs have risen even more sharply.
He said that India’s lower wage costs make it an attractive alternative for manufacturing, provided infrastructure and logistics improve. “If we can get our infrastructure right, the 10-15% cost advantage could make a big difference in margins,” Narang said.
Also Read: US tariffs not a major worry for India’s oil sector: ICICI Securities analyst
To support the economy, Narang expects the RBI to introduce a fixed repo facility, giving banks easier access to liquidity, reducing deposit costs, and ultimately lowering borrowing rates. This measure could help ensure a steady flow of credit, making it easier for businesses to navigate the challenges posed by higher tariffs.
For the entire interview, watch the accompanying video
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