Washington D.C, USA: Moody’s Warns US Tariffs Could Hinder India’s Manufacturing Goals, Economic Growth

Moody’s Ratings has cautioned that the steep 50% tariff recently imposed by U.S. President Donald Trump on Indian imports could significantly disrupt India’s manufacturing ambitions and hamper its economic momentum. The move, which includes an additional 25% hike announced Wednesday in response to India’s continued purchases of Russian oil, places Indian goods under much higher levies compared to other Asia-Pacific countries. As a result, Moody’s now forecasts a potential 0.3 percentage point dip in India’s GDP growth, revising it to around 6% for the fiscal year ending March 2026.

The ratings agency warned that such elevated tariffs could erode India's competitive edge, particularly in high-value manufacturing sectors like electronics, where the country has made notable progress in attracting foreign investment. Moody’s also noted that cutting back on Russian oil to avoid further penalties might make it challenging for India to secure alternative crude sources in adequate volumes, possibly widening the current account deficit. The report highlighted that reduced investor confidence and higher import costs could further strain economic stability.

Despite these concerns, Moody’s expressed hope for a negotiated settlement that could reduce the adverse impact of the tariff dispute. The agency added that while fiscal policy adjustments may be considered to offset the drag on growth, the Indian government is likely to stick with its plan for gradual fiscal and debt consolidation. Meanwhile, foreign investor sentiment has been rattled, with equity outflows totaling $900 million in August alone, following $2 billion in July. Benchmark indices such as the Sensex and Nifty 50 have also recorded declines amid the growing trade uncertainty.