India's Economic Outlook Weakens as US Tariffs Hit Investor Sentiment
India's economic growth outlook for the current fiscal year has clouded over, as a recent Reuters poll indicates that suggested US tariffs are hanging over business confidence and threatening to slow private investment. The April 15–24 poll of 54 economists suggests that the Indian economy will grow 6.3% in the 2024–25 fiscal year a marginal downgrade from the previous 6.5% forecast made in March.
This updated projection, though modestly higher than the International Monetary Fund's (IMF) figure of 6.2%, represents a sharp deceleration from the high 9.2% growth observed in 2023–24. Economists caution that beneath the comparatively stable headline growth number is a more serious issue: the economy is not creating enough high-paying jobs to absorb the large pool of people joining the workforce every year.
Even as the Indian government has stepped up infrastructure outlays, private sector investment a prime driver of sustainable growth has continued to stagnate over the last decade. That anemic investment environment is now being compounded by uncertainty over US trade policy. A suggested 26% import tariff on India to the US, while placed on a temporary 90-day hold, has already soured market sentiment.
"Business confidence has definitely been dented because no company today will accept a call under an uncertain and volatile climate", Union Bank of India chief economic advisor Kanika Pasricha said. "Investment is the worst-hit element due to trade tariffs".
Based on the survey, 60% of the economists (21 out of 35) polled indicated that the suggested US tariffs have been negatively or very negatively affecting Indian business sentiment, with only 14 expressing the effect as neutral. Economists said that businesses in industries such as renewables, refineries, steel, and cement which were willing to invest could now rethink or postpone plans for capital expenditure in light of the erratic trade environment.
"Middle-class Indians are suffering. Sales of residential buildings, two-wheelers, and passenger vehicles have all decreased", said India economist Kunal Kundu of Societe Generale. "It is imperative domestic policies target the cause".
Kundu stressed the importance of ambitious economic reforms, comparing the situation with India's groundbreaking liberalization movement in 1991. "India needs a 1991 moment", he asserted. "The tariff war presents a great opportunity for India to take this much-needed journey. Otherwise, even if it is the fastest-growing large economy in today's low global growth environment, India will fall short of its long-term vision of becoming a developed nation.
On the monetary policy side, mild consumer inflation which remained below the Reserve Bank of India's (RBI) 4% medium-term target for two months in a row is likely to enable the central bank to extend its easing cycle. The RBI is likely to reduce rates again in June to 5.75% and wrap up its cycle in August at 5.50%.
Consumer inflation is projected to average 4.0% this year before marginally increasing to 4.3% in the following year, providing some room for policy stimulus to spur growth.
