A failure to finalise an India-US trade deal could have a negative impact on the Indian economy, but new free trade agreements (FTAs) and export diversification may help reduce the effect, Reserve Bank of India (RBI) Governor Sanjay Malhotra said.

Malhotra said the impact would depend on the sectors affected and the level of any additional tariffs. He added that it was too early to assess the full impact because the details of potential tariffs were not yet clear.

The RBI Governor pointed to India’s recent trade agreements as an important buffer. FTAs that are already operational, along with those in the pipeline, could help Indian exporters access alternative markets.

He also highlighted the growing diversification of India’s export markets and products. This could reduce dependence on individual markets and help cushion exporters from a potential tariff shock.

His comments come as India-US trade negotiations remain at a difficult stage. Finance Minister Nirmala Sitharaman recently said the talks had reached a “plateau”, with further concessions becoming difficult.

The trade negotiations have gained additional importance following new U.S. legislation that gives the U.S. President powers to impose higher tariffs on countries involved in certain purchases of Russian and Iranian oil and gas. Additional tariffs have not been imposed while negotiations continue.

Malhotra also said the RBI’s recent 25-basis-point repo rate increase is unlikely to immediately affect bank credit growth. He noted that changes in monetary policy generally take several quarters to pass through to lending rates.