Indian financial markets faced turbulence on Thursday after U.S. President Donald Trump imposed unexpectedly steep 25% tariffs on Indian goods. The rupee slipped to 87.74 against the dollar—just shy of its record low, before partially recovering due to suspected intervention by the Reserve Bank of India (RBI). Major stock indices, the Nifty 50 and BSE Sensex, both dropped approximately 0.6%, reflecting investor anxiety over escalating trade tensions and the implications for India’s economy.
Economists warn that the tariffs could reduce India’s projected GDP growth in 2025–26 by up to 40 basis points. This is a significant blow as the country seeks to position itself as a hub for global manufacturing amid shifting supply chains. Analysts also expressed concerns about a potential pause in business investments, particularly among companies reliant on U.S. exports, due to heightened uncertainty around American trade policy.
While institutions like Goldman Sachs forecast a 30 basis point reduction in GDP due to the tariffs, others such as DBS Bank strike a more balanced tone. DBS notes that fiscal support for labor-intensive sectors and continued rate cuts could cushion the impact. They also believe India may still benefit from global trade realignments as manufacturers seek alternatives to China, keeping long-term investment sentiment alive.
Analysts highlight the strategic dilemma India faces in balancing its geopolitical interests. Though U.S.-bound exports make up only 2–3% of India’s GDP, the nation values its growing trade ties with both the U.S. and Russia. To defuse tensions, India may consider ramping up imports from the U.S. While the immediate market reaction is cautious, experts say that the lack of clarity on final trade terms leaves room for market volatility.
Despite the tariff shock, India’s government remains optimistic about economic resilience, projecting growth between 6.3% and 6.8% in 2025–26. Analysts argue that corporate earnings and domestic fundamentals will become more central in driving market sentiment as the current earnings season unfolds. For now, all eyes are on the RBI’s next steps and whether the rupee will breach the symbolic 88.00 mark, which could signal a shift in the central bank’s currency strategy.
Source: Reuters