RBI Governor Promises Support Amid US Tariff Threat
RBI Governor Sanjay Malhotra recently addressed concerns regarding the potential impact of the proposed 50% US tariffs on India's economy. He assured that the Reserve Bank of India is fully prepared to implement policy measures to support economic growth and assist sectors that may be adversely affected, particularly textiles and footwear. With these tariffs set to take effect shortly, the RBI is on high alert to ensure that necessary support mechanisms are in place.
During the FICCI-IBA annual banking conclave, Malhotra emphasized the importance of liquidity in the banking system. He stated that the RBI has already ensured ample liquidity and will take all necessary steps to foster economic growth, especially in sectors that are expected to face significant challenges. Recent data indicated a 5.49% year-on-year increase in loans to various industries, but this marked the weakest growth since March 2022, highlighting the need for proactive measures.
The government is also considering fiscal support for exporters, particularly in labor-intensive sectors like textiles and footwear, which are projected to be the hardest hit by the tariffs. Discussions with industry representatives and export promotion councils are underway to devise effective strategies to mitigate the impact.
Moreover, Malhotra called on businesses to invest courageously and champion the entrepreneurial spirit that is essential for India’s growth. He pointed out that when banks and corporates have strong balance sheets, they should collaborate to stimulate investment and drive economic activity.
Despite the challenges posed by the tariffs, Malhotra expressed optimism, noting that the overall impact is likely to be minimal. He highlighted the importance of ongoing trade negotiations between India and the US, aiming for a resolution that minimizes adverse effects. Economists have suggested that these tariffs could potentially lower India’s real GDP growth by approximately 0.6 percentage points.
To further cushion the impact of the higher tariffs, the government has implemented various reforms, while the RBI has reduced the repo rate and ensured liquidity support in the banking sector. This proactive approach is critical as India navigates a complex global economic landscape characterized by trade uncertainty and geopolitical tensions.
In conclusion, Malhotra urged all stakeholders to intensify their efforts in addressing emerging challenges and leveraging opportunities for growth. He reiterated the RBI's commitment to expanding bank credit towards productive sectors and enhancing financial intermediation efficiency, ensuring that the benefits reach the broader population.
