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Informist, Wednesday, May 7, 2025

 

NEW DELHI – Moody's Ratings on Tuesday cut India's GDP growth projections for 2025 by 20 basis points to 6.3%, citing heightened global policy uncertainty and trade restrictions. In its May update of the Global Macro Outlook 2025-26 report, Moody's said geopolitical stresses, like tensions between India and Pakistan, also have a potential downside risk to its baseline growth forecasts. "Costs to investors and businesses are likely to rise as they factor for new geopolitical configurations when deciding where to invest, expand and/or source goods," the rating agency said.

 

Moody's, however, retained India's growth forecast for 2026 at 6.5%. The Reserve Bank of India estimates India's GDP to grow 6.5% in 2025-26 (Apr-Mar), after lowering the estimate by 20 bps in early April. Most economists see the RBI's figure to be optimistic, with growth this year widely seen declining closer to 6.0% from the statistics ministry's second advance estimate of 6.5% for FY25.

 

The rating agency also said that among other emerging market countries, they expect India's central bank to lower interest rates further to support growth. In the latest meeting of the RBI's Monetary Policy Committee in April, the rate-setting panel had unanimously decided to cut the policy repo rate by 25 bps to 6.0% to support domestic growth. The panel also voted to change the policy stance to 'accommodative' from the 'neutral' stance adopted in October. 

 

"Economic growth was already set to slow this year back to its potential rate. We lowered our global growth projections for 2025 and 2026 further on account of the policy shifts and more intense policy uncertainty than we had previously expected, especially in the largest two economies — the US and China," Moody's added. Given these developments, it cut forecast for global growth sharply to 1.9% for 2025 and 2.3% for 2026 from 2.5% projected earlier for each of these years. 

 

For India, the US tariffs pose significant risks as the US is India's top export destination with a share of 19% in total outbound shipments in FY25. The US, which has raised concerns over the widening trade deficit with partner nations, announced sweeping tariffs on Apr. 2 in an attempt to boost local manufacturing, including 26% on India. These tariffs were later suspended for 90 days till Jul. 9. India had a merchandise trade surplus of $41.18 billion with the US in FY25, commerce ministry data showed. 

 

In addition to trade policy uncertainties, the global rating agency said that baseline forecasts incorporate a degree of financial market volatility and continued political tensions in multiple geographies. "Frequent bouts of intense financial market volatility that tighten liquidity and significantly raise the cost of capital could erode economic resilience, posing risks to growth," it said. 

 

On Monday, the ratings agency had said that its assessment framework accounts for persistent tensions between India and Pakistan, with flare-ups assumed to occur from time to time without leading to an "outright, broad-based military conflict". However, it remains to be seen if military conflict will be entirely avoided considering Indian armed forces launched a military operation in the early hours of Wednesday "hitting terrorist infrastructure" in Pakistan and Pakistan-occupied Kashmir. 

 

Pakistan's Ministry of Foreign Affairs said the Indian Air Force, while remaining within the Indian airspace, had violated Pakistan's sovereignty using standoff weapons. Pakistan termed the attack "an unprovoked and blatant act of war".  End

 

Reported by Priyasmita Dutta

Edited by Tanima Banerjee

 

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