Trump's tariffs could 'severely curtail' India's manufacturing and slow down growth, says Moody's

Beyond 2025, the much wider tariff gap compared with other Asia-Pacific countries would severely curtail India's ambitions to develop its manufacturing sector, Moody's said.

The steep 50 percent tariff by President Trump on India's exports to US could 'severely curtail' India's ambitions to develop its manufacturing, and slow down the economic growth, Moody's Ratings has said on August 8.

The note said that should India continue to procure Russian oil at the expense of the headline 50% tariff, the real GDP growth may slow by around 0.3 percentage points from the current forecast of 6.3 percent FY26. However, the note added that a resilient domestic demand and strength of the services sector should help mitigate the strain. Read More

India's Rising Import of Russian Oil

"Beyond 2025, the much wider tariff gap compared with other Asia-Pacific countries would severely curtail India's ambitions to develop its manufacturing sector, particularly in higher value-added sectors such as electronics, and may even reverse some of the gains made in recent years in attracting related investments," the Moody's note said.

Read More: India should weigh savings from importing Russian oil against tariff risk: Nobel laureate Banerjee

The note mentions that India is among the world's largest oil importers, and a shift toward non-Russian oil would tighten global supplies, thus raising prices, resulting in a potential pass through of higher inflation. "The consequently larger import bill would also contribute to a wider current account deficit against the backdrop of weaker tariff competitiveness, that potentially undermines investment inflows," Moody's added.

However, it added that India retains 'sufficient' foreign currency buffer to weather external volatility.

Read More: Trump’s tariff may dent export margins, but India’s manufacturing appeal intact, say economists

Moody's is hopeful of a negotiated solution that 'falls between the two scenarios' cited in its note. Any drag on growth from 'tariff obstacles' could influence India to consider a fiscal response, though it added that the government will adhere to its focus on gradual fiscal and debt consolidation.