Deregulation: The flavour of the moment

While deregulation is generally good for the economy, in banking it is wise to proceed cautiously

- TT RAM MOHAN

In a year in which India has been hit with additional tariffs of 50 per cent on exports to the United States, you would not have expected India's gross domestic product (GDP) growth projection to be revised upwards from 6.5 per cent in April to 6.8 per cent in October. Or the inflation rate to be revised downwards from 4.0 per cent to 2.6 per cent.

Yet, that is what the Reserve Bank of India (RBI) did in its latest monetary policy statement earlier this month. The tariffs will indeed impact growth. However, since they kicked in from September, the impact will be felt in the third and fourth quarters. The RBI's downward revisions for these two quarters indicate the impact will be extremely modest. For the year as a whole, the impact of tariffs in the second half of the year is overshadowed by GDP growth of 7.8 per cent in the first quarter of FY26, which was a good 100 basis points (bps) above expectations.

Commentators have been crying gloom and doom for the Indian economy ever since Donald Trump's announcement of reciprocal tariffs on "Liberation Day", April 2. Little of that has materialised in all these months. Analysts were projecting India's GDP for FY26 to be shaved by around 50 bps, from 6.5 per cent to 6 per cent or below. The RBI believes nothing of the sort is on the cards.

But then the Indian economy has a habit of delivering pleasant surprises in recent years. In FY23, a year in which the Ukraine conflict erupted and unfolded in a big way, India's GDP grew at 7.6 per cent when analysts were unsure if growth of even 6.5 per cent was possible. In FY24, GDP growth shot up further to 9.2 per cent, a number that defied all forecasts by a wide margin. These outcomes cannot be said to be accidental. They are the result of sound macroeconomic policies, regulation, and governance. The economy has become resilient in the face of serious challenges.