Trump’s Tariffs Threaten India’s Manufacturing and Economic Growth: Moody’s

The imposition of substantial 50% tariffs on Indian imports by former US President Donald Trump could significantly impede India’s manufacturing ambitions and decelerate economic advancement, Moody’s Ratings cautioned on Friday.

These elevated tariffs, which include an additional 25% imposed recently, were enacted in response to India’s continued acquisition of Russian oil. The total tariff burden now considerably surpasses those applied to other nations in the Asia-Pacific region.

Moody’s has projected that India’s real GDP growth could potentially decrease by roughly 0.3 percentage points from the previously anticipated 6.3% for the fiscal year concluding in March 2026.

According to the ratings agency, the expanded tariff disparities in contrast to other Asia-Pacific countries beyond 2025 may severely limit India’s aspirations to cultivate its manufacturing sector, especially in higher value-added domains such as electronics. It may also undo progress made in drawing linked investments.

Moody’s also indicated that reducing Russian oil imports to avert punitive tariffs could complicate India’s efforts to secure sufficient alternative crude supplies.

A higher import bill could expand the current account deficit, particularly given diminished tariff competitiveness, which might discourage investment inflows.

Moody’s anticipates a negotiated resolution that settles between the two above-mentioned scenarios.

The degree to which tariff obstacles hinder expansion will impact the government’s choice to implement a fiscal policy response, even though it is anticipated that the government will maintain its emphasis on gradual fiscal and debt consolidation.

The Reserve Bank of India (RBI) maintained its benchmark interest rates steady, as widely predicted, and upheld its neutral policy orientation after a surprising 50-basis-point rate decrease in June.

US tariffs have impacted Indian garment manufacturers, prompting US buyers to contemplate shifting production elsewhere.

Global trade uncertainties resulting from the U.S. tariffs have also shaken foreign investors. Foreign portfolio investors have divested $900 million in Indian equities in August alone, following outflows of $2 billion in July.

Investor apprehension amid escalating trade tensions has led to a decline in India’s benchmark equity indices, the Nifty 50 and the Sensex, which fell by 2.9% in July and are down by 0.7% thus far in August.