Subbarao, who steered India through the 2008 global financial crisis, said the tariff proposal from the US, especially on labour-intensive industries like textiles, footwear, and gems, threatens exports worth nearly 2% of India’s GDP (nearly $79 billion or Rs 7 lakh crore). “Margins will be eroded, orders diverted, jobs lost, and plants downsized,” he said, estimating a 20–50 basis points hit to growth depending on how well India manages or diverts the shock.
Risk from Chinese overcapacity
He cautioned that Beijing’s industrial overcapacity poses an additional risk. With China facing its own tariff barriers from the U.S., Chinese exporters may turn to India to offload surplus goods. “We must also reckon with China’s possibility of dumping in our markets to compensate for their own loss of U.S. market share,” he warned.
Pressure on competitiveness and jobs
According to Subbarao, the twin pressure from U.S. tariffs and Chinese dumping could weaken India’s push to join global value chains under the China+1 strategy. He added that the distributional effects would be regressive, deepening income inequality and straining the formal job market.
Reputational concerns from US remarks
Subbarao also flagged the potential reputational damage after Trump referred to India as becoming “dead like Russia.” “Even so, for India, being labelled a ‘dead’ economy by a U.S. president carries reputational costs,” he said. “Such comments can raise India’s risk premium, dent investor sentiment, and prompt portfolio reallocation even without direct policy actions.”
He stressed that with global liquidity tightening and borrowing costs rising, India must shield vulnerable sectors and accelerate structural reforms to maintain investor confidence and macroeconomic stability.
Impact on fiscal and monetary policies
On whether trade tariffs could influence fiscal and monetary policy, Subbarao said India’s fiscal consolidation path could be disrupted if tariff-hit sectors need short-term support. After last week’s policy review, the governor said the RBI is monitoring the effect of tariffs on growth, inflation, and the rupee. If tariffs fuel inflation and weaken the currency, interest rates may stay high; if growth slows sharply, rates may be eased. Policy, he added, will remain data-dependent and cautious.
