Goldman Sachs Cuts India’s Growth Forecast on US Tariff Worries

Global investment bank Goldman Sachs has trimmed India’s growth outlook for 2025 and 2026, citing escalating trade tensions with the United States following President Donald Trump’s decision to impose a 25% tariff on Indian goods. While the economic impact of the tariffs is still unfolding, the firm warns that policy uncertainty could prove to be a bigger drag on growth than the tariffs themselves.

Growth Forecasts Revised Downward

Goldman now expects India’s real GDP to grow 6.5% in 2025, down from its earlier 6.6% projection, and 6.4% in 2026, a 0.2 percentage point cut year-on-year.

“Some of these tariffs are likely to be negotiated lower over time,” the report notes. “But further downside risk to the growth trajectory mainly emanates from the uncertainty channel.”

The bank highlights that unpredictable trade policy can erode investor confidence, disrupt business planning, and delay investment decisions.

Unusually Low Inflation — A Double-Edged Sword

While growth forecasts have weakened slightly, inflation expectations are also being revised downward. Goldman Sachs has cut its consumer price inflation (CPI) forecast for both CY25 and FY26 by 0.2 percentage points to 3.0%, largely due to easing vegetable prices.

However, the report warns that such low inflation levels are rare in India and could be easily disrupted by food price shocks, energy costs, or currency fluctuations.

“These projections lie in the left tail of India’s historical inflation distribution,” the report cautions, suggesting they are vulnerable to reversal.

Tariffs vs. Uncertainty

Goldman Sachs emphasizes that the tariffs themselves may not be the most damaging factor. Instead, the lack of clarity on how long they will remain in place, and whether they might be increased further, is creating uncertainty for global investors and exporters.

Two key variables will determine the economic outlook,

• A possible breakthrough in the ongoing US–India trade standoff.
• Any signs of core inflation heating up, particularly if it moves toward the 4% threshold.

RBI Holds Steady

Meanwhile, the Reserve Bank of India (RBI) has kept the repo rate unchanged at 5.5% and retained its FY26 GDP growth forecast at 6.5%, signaling that it does not foresee a major slowdown at this stage.

The RBI has also sharply lowered its inflation forecast for FY26 to 3.1% from 3.7% earlier, aligning with Goldman’s low-inflation outlook. Like Goldman, however, the central bank acknowledges that such benign inflation conditions are rare and need careful monitoring.

Outlook

While Goldman’s revision is modest, it reflects a growing sense of caution among global investors about the combination of geopolitical trade frictions and historically low inflation. The coming months will be crucial in determining whether India can negotiate a tariff resolution and sustain its growth momentum without inflationary shocks.