According to reports, while Trump's 25 percent tariff presents immediate challenges, India’s diversified economy and resilient domestic demand offer a ‘strong shield’.

Also, the most recent data suggests India's real GDP growth rate for 2025 is projected to be 6.2%, according to Forbes India. This is based on reports from July 2025. This growth rate positions India as a major player in the global economy, with its share of global GDP, adjusted for PPP, estimated at 8.23%.

Now, amid the latest scenario and global concerns, the RBI has retained its projection for India’s real GDP growth at 6.5 per cent for FY2025-26

Geopolitical uncertainties may have somewhat abated, but as “global trade challenges continue to linger, “the headwinds emanating from prolonged geopolitical tensions may well have been instrumental, among other factors, in the Reserve Bank of India’s (RBI) decision on Wednesday to continue with the policy repo rate of 5.5 per cent.

For those unaware, the repo rate is the interest rate at which the central bank lends to commercial banks in times of fund shortages. By maintaining the status quo, the RBI has provided relief from any immediate increase in borrowing costs, a crucial consideration as India’s economic growth, while resilient, remains exposed to global uncertainty, including fresh tariff measures and prolonged trade negotiations.

What is Repo Rate?

The Repo Rate is the interest rate at which the Reserve Bank of India (RBI) loans money to commercial banks. Repo Rate full form is Repurchase Agreement or Repurchasing Option. Banks obtain loans from the Reserve Bank of India (RBI) by selling qualifying securities.

The current Repo rate in India is 5.50%, as announced by RBI’s Governor Sanjay Malhotra on 6 June 2025 in the RBI MPC Meeting.

The central bank or RBI and the commercial bank would reach an agreement to repurchase the securities at a set price. When banks are short on funds or need to maintain liquidity under volatile market conditions, this is done. The repo rate is utilized by the RBI to manage inflation.

How Does Repo Rate Work?

As previously stated, the repo rate is utilized by the Indian central bank to restrict the flow of money in the market. When the market is impacted by inflation, the RBI raises the repo rate.

An increased repo rate means that banks borrowing money from the central bank during this period will have to pay more interest. This inhibits banks from borrowing money, reducing the amount of money in the market and helping to negate inflation. In the event of a recession, the RBI repo rates are also reduced.

Current Repo Rate in India

The current Repo rate in India is 5.50%. On June 6, 2025, the Reserve Bank of India (RBI) reduced the repo rate by 50 basis points to 5.50% from the earlier 6% in the Monetary Policy Committee (MPC) meeting.

Global Trade Tensions & Policy Caution

“Prospects of external demand, however, remain uncertain amidst ongoing Tariff announcements and trade negotiations,” RBI Governor Sanjay Malhotra stated, articulating the rationale behind the Monetary Policy Committee’s (MPC) decision. “The uncertainties of tariffs are still evolving,” he added.

The MPC's decision drew broad consensus among economists and industry leaders. Principal Economist at Crisil, observed that “overall economic growth faces challenges from global uncertainties, particularly the downside to trade from higher US tariffs.”

CEO of Savills India expressed concern over “rising US protectionism which weighs on trade sentiment,” while highlighting the UK-India Free Trade Agreement (FTA) as a positive step towards deepening trade relationships.

Associate Director at India Ratings and Research, noted there may be scope for monetary easing if the Tariff war intensifies. “There is some scope for further monetary easing or a drop in rates, which may unfold if the impact of the tariff war on the Indian economy becomes too adverse”.

From the exporters’ perspective, Chairman of the Engineering Export Promotion Council (EEPC) India said that while engineering exports have managed to grow in the current fiscal, uncertainty surrounding the US trade deal poses downside risks. “We, however, hope that an interim bilateral trade deal with the US would be signed in the coming months.”

India now faces a complex trade environment following the United States government's move to impose a 25 per cent tariff on certain Indian goods, effective August 7. The announcement adds another layer of uncertainty for Indian exporters, already navigating the uneven waters of global protectionism. Notably, the US President has vowed to "substantially" raise tariffs on India within the next 24 hours.

As global trade slows, developing economies face rising tariffs, uncertainty, and weaker demand.

In their new blog, Ayhan Kose, @AlenMulabdic, and @CMWheeler share five steps to keep trade driving growth. https://t.co/carP0O1hVl pic.twitter.com/QmBjusT9en
— World Bank (@WorldBank) July 21, 2025

Silver Linings & Structural Strength

In a recent PHD Chamber of Commerce and Industry (PHDCCI) report, which estimates that the recently announced 25 per cent US tariff on Indian imports may have only a marginal impact of 0.19 per cent on India’s GDP.

The white paper released Wednesday offers further perspective. It estimates that the new US tariffs will impact roughly USD 8.1 billion of Indian exports, but the overall economic effect will remain moderate, with a 1.87 per cent dip in total global merchandise exports and just a 0.19 per cent hit to GDP.

According to the President of PHDCCI, the situation calls for bold strategic shifts. “The tariff challenge accelerates India's need for export sophistication and geographic diversification. Our strategy framework provides a roadmap for converting this disruption into an opportunity for long-term competitiveness enhancement," he said.

Amid global concerns, the RBI has retained its projection for India’s real GDP growth at 6.5 per cent for FY2025-26, with quarterly estimates ranging from 6.3 to 6.7 per cent.

“This optimism is underpinned by structural strengths, notably the moderation of the current account deficit (CAD) to 0.6 per cent of GDP in 2024–25 from 0.7 per cent a year earlier, supported by robust services exports and strong remittance inflows.”

India’s share in global services exports has increased significantly, from around 2 per cent in 2005 to 4.3 per cent in 2024, driven by growth in software and business services. These trends are expected to keep the Current Account Deficit (CAD) within sustainable limits this year, even amid a wider merchandise trade deficit.

While the 25 per cent tariff does present immediate challenges, India’s diversified economy and resilient domestic demand offer a strong buffer. At the macro level, the impact remains manageable and could even catalyze a strategic pivot towards market diversification and higher-value exports.

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