Goldman Sachs has revised India’s economic growth forecast downward following the United States’ decision to impose 25 per cent “reciprocal” tariffs on Indian imports, effective August 1.
The brokerage had lowered India’s real GDP growth forecast for calendar year 2025 by 0.1 percentage point to 6.5 per cent and by 0.2 percentage point to 6.4 per cent for 2026.
While the full impact of these tariffs may unfold over time, Goldman Sachs believes the biggest drag to growth will come through rising uncertainty in trade and investment decisions. “Some of these tariffs are likely to be negotiated lower over time,” the report noted, adding that the real risk lies in how uncertainty affects business sentiment.
Goldman Sachs cuts inflation forecast to 3% for FY26
On the inflation front, the report brings some relief. Headline CPI inflation is projected to remain well below the Reserve Bank of India’s (RBI) target, thanks to a steep fall in vegetable prices. Goldman Sachs has lowered its inflation forecast by 0.2 percentage point to 3 per cent for both CY25 and FY26.
The drop in food inflation, particularly in vegetables and pulses, has been sharper than expected. July vegetable prices are tracking at -2.3 per cent on a seasonally adjusted monthly basis. As a result, headline inflation for July is expected to come in at just 1.2 per cent year-on-year.
Despite extreme heatwaves in parts of India, higher rainfall and lower-than-normal maximum temperatures have helped ease supply pressures on key food items.
One more RBI rate cut in Q4 to 5.25%: Goldman Sachs
The brokerage Goldman Sachs expects one more rate cut this year of another 25 basis point rate cut in the fourth quarter taking the repo rate down to 5.25 per cent.
Two scenarios could prevent a rate cut in Q4, highlighted Goldman Sachs — either a quick and favourable resolution to US-India trade talks or a faster-than-expected rise in core inflation, excluding petrol, diesel, gold and silver, towards 4 per cent.
Goldman sees rupee pressure as foreign investors exit
The report also flagged a marginal deterioration in India’s external position. Goldman Sachs has raised its current account deficit forecast by 0.1 percentage point to 0.9 per cent of GDP for both CY25 and CY26.
With foreign investors turning net sellers in Indian equities during July and the RBI expected to unwind its large short forward position in the FX market, the rupee could face further depreciation. However, any currency movement is likely to be allowed only if it is not seen as disorderly.
