Goldman Sachs India Downgrades Growth: What the US Tariffs Change—and What Comes Next

Goldman Sachs trims India’s growth to 6.5%, cuts inflation forecast to 3%, expects one RBI rate cut—and trade uncertainty looms.

Imagine India’s growth engine revving down slightly—not due to domestic woes, but because of external trade pressure. That’s the reality today. Goldman Sachs has trimmed India’s projected GDP growth for 2025 to 6.5%, citing the U.S.’s imposition of 25% “reciprocal” tariffs effective August 1. Let’s unpack why this matters—for growth, inflation, interest rates, and everyday sentiment.

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⚖️ Growth Outlook Revised: 6.5% in CY2025, 6.4% in CY2026

Goldman Sachs has cut its GDP growth outlook by 0.1 percentage point to 6.5% for CY2025, and by 0.2 point to 6.4% in CY2026 The Economic Times+15The Financial Express+15The Tribune+15Reuters+5Business Standard+5The Financial Express+5Reuters+1Reuters+1. This isn’t due to weak fundamentals—far from it—but reflects the shockwaves from U.S. reciprocal tariffs.

• India’s exposure to U.S. final demand is modest (~2‑4% of GDP), but the broader uncertainty channel—delays in trade deals, postponing investments—bites harder ThePrint+3Business Standard+3The Economic Times+3.
  
• Goldman notes that while some tariffs may be negotiated down over time, the larger drag comes from verbal and policy uncertainty chilling business sentiment The Financial Express+1.
  

🔍 Key Takeaway

A 6.5% growth forecast reflects not a structural slowdown, but a temporary speedbump caused by external trade friction and risk aversion.

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🍲 Inflation Cools Sharply — Now Near 3% Forecast

Unexpectedly soothing news on inflation: Goldman has lowered its forecast to ~3.0% both for CY2025 and FY2026—a cool-down of 0.2 percentage point from earlier estimates The Economic Times+15The Financial Express+15Business Today+15.

• July’s food inflation is especially soft, with vegetable prices down 2.3% month‑on‑month (seasonally adjusted). That dragged headline year‑on‑year CPI to around ~1.2% The Financial Express.
  
• Heavy monsoon rains and cooler maximum temperatures eased supply-side pressures on key categories like vegetables and pulses.
  

🔍 Key Takeaway

India is enjoying a rare disinflation moment—food prices fall, inflation stays low. But with inflation near the lower bound of RBI’s target band, surprises still loom.

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💱 RBI May Cut Rates Soon—But Caution Prevails

Goldman expects one more repo rate cut of 25 bps in Q4, bringing it to 5.25% before year-end. But two roadblocks could halt further easing:

• A rapid resolution of trade negotiations with the U.S., easing uncertainty; or
  
• A faster-than-expected rise in core inflation (excluding volatile items) toward 4.0% The Financial Express.
  

But as of Aug 6, 2025, the RBI left the repo rate unchanged at 5.50%, with a neutral stance and no further cut just yet—despite inflation cooling. RBI’s MPC cited external downside risks amid tariff shocks Reuters+1.

🔍 Key Takeaway

Monetary policy is in a holding pattern: inflation is benevolent, but external shocks keep RBI cautious.

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💡 External Risks: CA Deficit & Rupee Weakness

Goldman Sachs raised its forecast for India’s current account deficit to ~0.9% of GDP in CY25 and CY26 The Statesman+3The Financial Express+3The Economic Times+3.

• Foreign investors turned net sellers in Indian equities during July, adding pressure on the rupee.
  
• RBI also faces the task of unwinding its large short forward FX positions. It may allow the rupee to depreciate, but only within a “non-disorderly” framework Reuters.
  

Meanwhile, Reuters reports the rupee flirting with record lows (~₹87.7/USD), prompting speculation about possible RBI intervention Reuters.

🔍 Key Takeaway

External vulnerabilities are rising: elevated current account deficits and rupee volatility add to macro uncertainty.

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📉 Economic Impact: Export Drag vs Sentiment Freeze

Three channels through which U.S. tariffs dent India’s economy as per Goldman Sachs:

1. Country‑level reciprocity: uniform tariffs ~6.5pp on all Indian imports.
   
2. Product‑level reciprocity: matching of U.S. tariffs item‑by‑item, potentially raising effective levels to ~11.5pp.
   
3. Non‑tariff barriers and uncertainty, delaying business decisions and capital deployment cfo.economictimes.indiatimes.com+12The Financial Express+12The Financial Express+12.
   

Under various scenarios, GDP growth could decline by 0.1‑0.6 percentage point, with the central estimate around ~0.3 pp. Earnings per share impact is modest (2% on MSCI India), but sentiment takes a bigger hit businessupturn.com.

🔍 Key Takeaway

While direct export exposure is limited, the psychological impact on domestic investment decisions may slow growth more than the export numbers suggest.

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🧑‍💼 What This Means for Indian Businesses and Investors

For Business Leaders:

• Trade uncertainty suggests you delay or stage major investment decisions, especially in U.S.-exposed sectors.
  
• Hedge against currency risk. Consider natural hedging or contract pricing strategies.
  
• Monitor softening food inflation—this may boost consumer purchasing power modestly but could flip quickly with weather shocks.
  

For Investors:

• Growth may hover near 6.5%—not booming, not bust. Attractive valuations in sectors not tied to U.S. exports could shine.
  
• The rupee may see further weakness—exporters might benefit, but import-heavy sectors could feel the squeeze.
  
• If RBI cuts rates further later in FY26, cyclicals and interest-sensitive sectors may rebound.
  

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Summary: What You Should Remember

• GDP trimmed to 6.5% for CY25, 6.4% for CY26, largely due to trade uncertainty The Economic Times.
  
• Inflation forecast lowered to 3.0%, led by a steep drop in vegetable prices—but weather risks remain.
  
• One more RBI repo cut expected, but paused at 5.50% as of early August pending more clarity.
  

Current account deficit forecast raised to 0.9%; rupee under pressure amid capital outflows.