US tariffs to hit India mfg sector; domestic demand seen resilient
Moody's
This story was originally published at 10:37 IST on 4 August 2025
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--Moody's: Curtailed access to US diminishes India's mfg sector prospects
--Moody's: Higher US tariff of 25% vs other countries disadvantages India
--Moody's: See India domestic demand staying resilient to external pressures
--Moody's: Favorable outlook for India's services sector remains intact
MUMBAI – India's manufacturing sector prospects are likely to take a hit because of the imposition of a 25% tariff by the US on imports from India, Christian de Guzman, senior vice president at Moody's Ratings, said Monday. However, India's domestic demand is expected to remain resilient in the face of external pressure, de Guzman said in a note.
"Curtailed access to the largest economy globally diminishes prospects for India's ambitions to develop its manufacturing sector, particularly in higher value-added sectors such as electronics," de Guzman said. "The higher tariffs relative to other countries also disadvantages India as it vies for a greater share of trade and investment flows away from China, which has been subject to even more severe tariff treatment by the US."
US President Donald Trump last week announced a 25% tariff on India and an unspecified penalty for India's military and oil trade with Russia. While lower than the 26% tariff first announced in April, the levy is much higher than faced by other Asian economies.
The Indian government has been looking to boost its manufacturing capacity over the past few years. The government has highlighted the electronics sector as one of the success of its performance-linked incentive scheme to increase manufacturing in the country. Apple's Chief Executive Officer Tim Cook last week said most iPhones sold in the US are now manufactured in India.
India and the US are negotiating a trade agreement and officials from Washington are expected to arrive in New Delhi on Aug. 25 for the next round of negotiations.
While there appears to be some room to negotiate for lower tariffs, this is balanced against downside risks from potential "penalty" tariffs associated with India's purchases of Russian crude petroleum, de Guzman said.
He added that India's domestic demand will be resilient in the face of the tariffs as the Indian economy is less trade-reliant than other large economies in Asia-Pacific. "Moreover, the favorable outlook for India's services sector, whose scope and scale are unrivalled in the region, remains intact as associated services exports do not appear to be a major point of contention in bilateral relations with the US," de Guzman said. End
Reported by Shubham Rana
Edited by Akul Nishant Akhoury
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