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Informist, Friday, Aug. 8, 2025

 

--Moody's: Doubled US tariffs increase risks to India's growth, inflation 

--Moody's: See hit of 30 bps to India GDP growth from 50% US tariffs 

--Moody's: Strong  domestic demand, svcs sector to mitigate US tariff hit 

--Moody's: India's wider tariff gap vs peers to hit mfg sector ambitions 

 

MUMBAI – The US' decision to double tariffs on India to 50% increases risks to the Indian economy, Moody's Ratings said Friday. How India responds to these tariffs will determine the ultimate effects on its growth, inflation and external position, the rating agency said. 

 

Effective Thursday, Indian exports to the US face a tariff of 25%. This will rise to 50% from Aug. 27 after the US Wednesday levied an additional tariff of 25% on India for buying crude oil from Russia. Once implemented, the 50% tariff will be among the highest faced by any country, alongside Brazil.

 

"Should India continue to procure Russian oil at the expense of the headline 50% tariff rate on goods it ships to the US, which is currently its largest export destination, we project that real GDP growth may slow by around 0.3 percentage points compared with our current forecast of 6.3% growth for fiscal 2025-26 (Apr-Mar)," Moody's said in a report. "However, resilient domestic demand and the strength of services sector will mitigate the strain."

 

If India continues to have a much wider tariff gap compared with other Asia-Pacific countries beyond 2025, it would severely curtail New Delhi's ambitions to develop its manufacturing sector, particularly in higher value-added sectors such as electronics, Moody's said. The tariff gap may even reverse some of the gains made in recent years in attracting manufacturing related investments, it added. 

 

If India decides to curtail crude oil imports from Russia to avoid US tariffs, it may face difficulties in buying oil from alternative sources in sufficient amounts and in a timely fashion, Moody's said, adding this could disrupt economic growth. "Since India is among the world's largest oil importers, a shift toward non-Russian oil would tighten supply elsewhere, raise prices and pass through to higher inflation."

 

India has been buying crude oil from Russia at discounted prices amid sanctions by western countries after Russia invaded Ukraine. New Delhi's oil purchases from Russia at prices below global levels have helped insulate India's inflation from the pass-through of global commodity price movements, while preempting pressures on its current account deficit, Moody's said. 

 

Moving away from Russian oil could lead to a larger import bill for India, which would contribute to a wider current account deficit and in turn undermine investment inflows, the rating agency said. "Nevertheless, India retains sufficient foreign-reserve currency buffers to weather external volatility."

 

New Delhi and Washington have been negotiating a bilateral trade agreement for several months now, with the next round of negotiations scheduled to begin Aug. 25. Moody's expects the two countires to negotiate a solution. "The magnitude of the drag on growth from tariff obstacles will influence the government's decision to pursue a fiscal policy response, although we anticipate the government will adhere to its focus on gradual fiscal and debt consolidation."  End

 

Reported by Shubham Rana

Edited by Avishek Dutta

 

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