Will US Tariffs Push India’s RBI to Slash Rates Again
- thebrink2028
- Aug 4
- 4 min read
Riya, a small-time exporter of handwoven shawls, her stall a riot of colors. She’s been shipping her goods to the US for years, her modest business keeping her family afloat. But last month, her American buyer sent her a panicked email: “Riya, the new 25% US tariff is killing us. We might have to cut orders.” Her heart sank. That single email, a business hiccup rippling across the globe, one that could force India’s Reserve Bank (RBI) to rethink its playbook.
A Global Trade Storm
The US, under President Donald Trump’s renewed trade agenda, has slapped a 25% tariff on Indian exports, alongside hefty levies on Canada, Mexico, and China. These tariffs, rolled out in early 2025. For India, a country where exports to the US account for roughly 2% of GDP, the direct hit might seem small. But, the ripple effects could shave off 0.3-0.4% of India’s GDP, equivalent to $12-16 billion in economic output. That’s enough to build 50 state-of-the-art hospitals or fund free education for millions of kids.
Why is this happening? Trump’s tariffs, rooted in his “America First” policy, aim to protect US industries by making imported goods pricier. But the fallout is global. The world’s trade arteries are clogging, and India’s not immune. The rupee, already Asia’s worst-performing major currency in 2025 with a 2% drop, is teetering near record lows at 85-87 against the dollar. This is a signal of deeper trouble.
Here’s where it gets brutal. The news are not telling you the full story. While headlines scream about tariffs and trade wars, they miss the undercurrents, the shocking details that could change everything.
The Rupee’s Silent Scream: The rupee’s 2% slide might sound modest, but it’s masking a crisis. Foreign portfolio investors (FPIs) pulled out $1.5 billion from Indian markets in June and July 2025 alone. Why? The US tariffs, coupled with India’s trade ties with Russia, have spooked investors. If this continues, the rupee could hit 90 against the dollar soon, next year, making everything from imported oil to your next iPhone pricier.
Export Dreams Crushed: India’s merchandise exports to the US, think textiles, pharmaceuticals, and auto parts, are taking a direct hit. A single 25% tariff translates to $3 billion in added costs for Indian exporters. For small businesses like Riya’s, it’s the difference between paying school fees and closing shop. And, India’s services exports, like IT and call centers, might cushion the blow, but they’re not tariff-proof. If global demand tanks due to a US-led trade war, even India’s tech hubs could feel the chill.
Retaliation Risks: China’s already hit back with 34% tariffs on US goods. Europe’s mulling countermeasures. India’s playing it cool, negotiating a trade deal with the US, but what if talks fail? A retaliatory spiral could see India slapping its own tariffs, driving up costs for consumers and businesses. Imagine paying 20% more for your next American-made product, or not finding it at all.
The Inflation Trap: Here’s the dirty secret: tariffs are a tax, and consumers pay the price. In the US, the average household is looking at a $1,300 hit in 2025 due to higher prices. In India, imported goods like electronics and raw materials could spike by 15-20%, fueling inflation. The RBI’s already battling to keep inflation below 4%. If tariffs push it higher, your grocery bill could jump 10% by next year.
Why the RBI Might Cut Rates—Again
Now, let’s talk about the RBI. In June 2025, it slashed its repo rate by a bold 50 basis points to 5.5%, a move that shocked markets. Why? Growth fears. India’s GDP growth, once a blazing 9.2% in 2023-24, is now projected at a tepid 6.5% for 2025-26. The US tariffs are a big reason, slower exports, weaker investor confidence, and a battered rupee are dragging the economy down. Banks estimate a direct GDP hit of 0.5% from reduced export volumes and foreign fund inflows.
The RBI’s in a bind. Inflation’s moderating, giving it room to cut rates, but the tariff threat is big. If global trade tensions escalate, the RBI might slash rates by another 100 basis points by mid-2026, bringing the repo rate to 4.5%. Why? To juice up borrowing, spur investment, and keep the economy from stalling. But, lower rates could weaken the rupee further, making imports even costlier. It’s a high-stakes gamble, and Govt. team knows it.
TheBrink's - What Happens Next?
It’s not pretty. If the US tariffs stick, India’s economy could face a triple whammy: slower growth, higher inflation, and a weaker rupee. By Q3 2026, GDP growth could dip to 6%, a far cry from India’s glory days. Small exporters like Riya might see orders dry up, forcing layoffs or closures. The RBI’s likely to cut rates again in August or October 2025, possibly by 25-50 basis points, to cushion the blow. But if global retaliation spirals, we’re looking at a potential global recession.
What’s one bold move India should make to counter US tariffs and protect its economy?
A Special Thank You
A heartfelt thank you to Anjali Sharma, a Financial analyst from Jaipur, for sponsoring this article. Anjali’s brother runs a small textile export business hit hard by the tariffs, and she funded this piece to amplify the voices of everyday Indians caught in this trade war. Her reason? “I want the world to know what’s at stake, not just for my family, but for millions like us.”
Sponsor a topic, share a story, and let’s build a community.
-Chetan Desai for TheBrink2028
