Moody’s States India is Well-Equipped to Handle Negative Impact of US Tariffs
Moody’s Assessment of India’s Economic Resilience
A recent analysis by Moody’s Ratings has emphasized that India is well-equipped to navigate the challenges posed by US tariffs and disruptions in global trade. The agency highlighted that strong domestic growth factors and a low reliance on exports are stabilizing forces for the Indian economy. Their note indicated that government initiatives aimed at enhancing private consumption, expanding manufacturing capabilities, and boosting infrastructure expenditure will counterbalance the diminishing outlook for global demand.
The report also noted that easing inflation could pave the way for interest rate reductions, thereby providing further economic support, especially as the banking sector maintains favorable liquidity for lending. According to Moody’s, “India is in a more advantageous position than many other emerging markets to withstand US tariff impacts and global trade disruptions, due to its strong internal growth dynamics, substantial domestic market, and limited reliance on cross-border goods trade.”
Impact of Regional Tensions and Defense Spending
Additionally, the agency pointed out that ongoing tensions between India and Pakistan, including a recent escalation in May, are more likely to hamper Pakistan’s economic growth rather than India’s. “In the event of persistent localized tensions, we do not foresee significant disruptions to India’s economic activities, as its economic ties with Pakistan are minimal. Furthermore, the regions in India that contribute primarily to agricultural and industrial production are located far from any conflict areas,” Moody’s explained.
However, increased defense expenditures could negatively impact India’s fiscal health and hinder its progress in fiscal consolidation. On the positive side, the central government’s investments in infrastructure are conducive to GDP growth, while reductions in personal income tax stimulate consumer spending.
Sectoral Vulnerabilities Amid Global Trade Challenges
India’s limited dependence on goods trade, paired with a strong service sector, serves as a buffer against US tariffs. That said, certain industries, such as the automotive sector, which exports to the US, continue to confront global trade hurdles despite their multifaceted operations.
Earlier this month, Moody’s revised downward its economic growth forecast for the 2025 calendar year to 6.3%, a decrease from its previous estimate of 6.7%. Nevertheless, this growth rate remains the highest among G-20 nations. In April, the US government announced a pause of 90 days on the enforcement of extensive, country-specific tariffs on its trading partners, implementing a base tariff of 10%, with certain sectors enjoying exemptions while higher tariffs persist for others, including steel and aluminum.
