RBI: Tariff Uncertainty Threatens Growth, Warns Governor Malhotra

RBI Governor Sanjay Malhotra Warns: Tariff Uncertainties Pose Growth Risks to India’s Economy:

In recent statements, Reserve Bank of India (RBI) Governor Sanjay Malhotra has highlighted the potential risks that tariff uncertainties pose to India’s economic growth. While acknowledging the nation’s resilience, Malhotra emphasized the need for strategic measures to mitigate the adverse effects of global trade tensions.

Understanding the Impact of Tariff Uncertainties

Governor Malhotra noted that escalating global trade frictions, particularly those involving major economies, could impede India’s growth trajectory. He pointed out that higher tariffs might negatively affect net exports, thereby influencing domestic economic expansion. Although quantifying the exact impact remains challenging due to various dynamic factors, the concern is that prolonged trade uncertainties could weigh on exports and manufacturing sentiment.

India’s Economic Resilience Amid Global Challenges

Despite these concerns, the RBI’s May monthly bulletin underscores India’s economic resilience. The bulletin describes the outlook as one of “cautious optimism,” highlighting the country’s preparedness to manage global headwinds and its position as a significant contributor to global growth. India’s strong domestic demand, contributing about 90% to GDP, serves as a buffer against external shocks.

Monetary Policy Responses

In response to the evolving global economic landscape, the RBI has adopted an accommodative monetary policy stance. The central bank has cut its key policy rate for the second consecutive time, aiming to stimulate growth amid global uncertainties. Easing inflation pressures have provided room for such policy adjustments, with the consumer price index dropping to 3.16% in April, below the RBI’s 4% target.

Strategic Recommendations

Governor Malhotra emphasized the importance of diversifying India’s trade relationships to reduce dependency on a few countries. He advocated for integrating more into the global value chain by improving efficiency and productivity. Such strategies are crucial to navigate the complexities of global trade dynamics and to bolster the economy against potential external shocks.