India's Economy Set To Manage The Impact Of US Tariff Disruptions: Moody's

Measures such as boosting infrastructure investment, ramping up manufacturing capacity, and stimulating private consumption are all contributing to economic stability, the agency said.

India’s limited exposure to goods trade, paired with the strength of its services sector, serves as a safeguard against tariffs imposed by the US.

Source : ABPLIVE AI

India is expected to weather the impact of global trade disruptions and recent US tariff hikes better than many other emerging markets, according to Moody’s Ratings. The agency cited the country's strong domestic economy, reduced dependence on exports, and effective government initiatives as key buffers against external volatility.

In its latest note on India, Moody’s highlighted that the economy remains anchored by internal growth engines. Measures such as boosting infrastructure investment, ramping up manufacturing capacity, and stimulating private consumption are all contributing to economic stability. These actions, the agency believes, will help neutralise the adverse effects of a weakening global demand environment, reported PTI.

“India is better positioned than many other emerging markets to deal with US tariffs and global trade disruptions, helped by robust internal growth drivers, a sizable domestic economy and a low dependence on goods trade,” Moody’s noted.

Domestic Fundamentals Offer Cushion Against External Pressures

The report also pointed to moderating inflation as a potential enabler of interest rate cuts, creating further scope for policy support. Liquidity in the banking sector remains favourable, enhancing the ability of lenders to extend credit and support economic momentum.

India’s limited exposure to goods trade, paired with the strength of its services sector, serves as a safeguard against tariffs imposed by the US. However, Moody’s did caution that specific industries, including the auto sector with exposure to US markets, may encounter challenges from shifting global trade patterns, despite having diversified operations.

Moody’s acknowledged recent geopolitical tensions in the region, including the May flare-up between India and Pakistan, but said the impact on India’s economy is expected to be minimal. “In a scenario of sustained escalation in localised tensions, we do not expect major disruptions to India’s economic activity because it has minimal economic relations with Pakistan,” the agency said. It added that “the parts of India that produce most of its agricultural and industrial output are geographically distant from the conflict zones.”

High Growth Rate Among G-20 Nations Despite Downgrade

Despite a slight downward revision in its GDP forecast—from 6.7 per cent to 6.3 per cent for calendar year 2025—Moody’s said India would still post the strongest growth among G-20 nations. While the government’s higher defense spending could put pressure on fiscal consolidation, ongoing infrastructure investments and recent income tax reliefs are expected to bolster domestic demand and overall GDP performance.

The update follows the US administration’s announcement in April of sweeping new tariffs, though implementation has been paused for 90 days. The policy retains a 10 per cent base tariff, while certain sectors such as steel and aluminium face higher duties.