US President Donald Trump’s decision to double tariffs on Indian goods to 50% could deal a major blow to New Delhi’s manufacturing ambitions, ratings agency Moody’s warned on Friday.
Moody’s cautioned that the steep tariff gap compared with other Asia-Pacific nations could reverse some of India’s recent gains in attracting global investment, hurting both growth and inflation.
The agency said that, "India's response to these developments will ultimately determine the effect on its growth, inflation and external position."
Trump on Wednesday, signed an executive order imposing an additional “penalty” tariff of 25% on all Indian imports, on top of the 25% duty already in place, citing India’s continued purchase of Russian oil.
The White House argued that these imports pose an “unusual and extraordinary threat” to US national security and foreign policy.
With this move, the total tariff on Indian goods entering the US will rise to 50%. The first round of tariffs took effect on August 7, and the second round will begin 21 days later on August 27.
Should India continue to procure Russian oil?
If India continues to buy Russian oil and absorbs the full 50% US tariff on exports, with the US being its largest export market. Moody’s projects GDP growth could slow by about 0.3% points from its forecast of 6.3% for FY2025-26.
However, strong domestic demand and a resilient services sector would help cushion the blow. Over the longer term, India’s wider tariff gap compared to other Asia-Pacific economies could damage its manufacturing ambitions, especially in high-value sectors like electronics, and may even reverse recent investment gains.
Oil supply challenges if imports cut
The agency also said avoiding the "penalty tariffs," finding sufficient alternative crude supplies in time could prove difficult. Any disruption in oil supply would slow growth, while shifting to non-Russian oil could tighten global supply, push up prices, and feed inflation.
Despite these risks, Moody’s notes that India has strong foreign exchange reserves, which should help the country manage external volatility.
The trade tensions come as the Reserve Bank of India kept interest rates unchanged and maintained a “neutral” policy stance, following a surprise 50-basis-point cut in June.
Investor sentiment shaken by escalating tariff dispute
The escalating US tariffs have added to global trade uncertainty, keeping foreign investors cautious. So far in August, foreign portfolio investors have sold $900 million worth of Indian shares, after pulling out $2 billion in July.
Indian stock market have also felt the pressure, Nifty 50 and BSE Sensex fell 2.9% in July and are down another 0.7% this month, reflecting growing investor anxiety over the trade dispute.
However, on Thursday after an initial sell-off triggered by Trump’s latest tariff move, Dalal Street staged a sharp rebound. The Sensex, which had plunged over 700 points recovered all its losses in a late buying spree to end 79 points higher at 80,623. Nifty50 also closed in the green to settle at 24,596.
Moody’s cautioned that the steep tariff gap compared with other Asia-Pacific nations could reverse some of India’s recent gains in attracting global investment, hurting both growth and inflation.
The agency said that, "India's response to these developments will ultimately determine the effect on its growth, inflation and external position."
Trump on Wednesday, signed an executive order imposing an additional “penalty” tariff of 25% on all Indian imports, on top of the 25% duty already in place, citing India’s continued purchase of Russian oil.
The White House argued that these imports pose an “unusual and extraordinary threat” to US national security and foreign policy.
With this move, the total tariff on Indian goods entering the US will rise to 50%. The first round of tariffs took effect on August 7, and the second round will begin 21 days later on August 27.
Should India continue to procure Russian oil?
If India continues to buy Russian oil and absorbs the full 50% US tariff on exports, with the US being its largest export market. Moody’s projects GDP growth could slow by about 0.3% points from its forecast of 6.3% for FY2025-26.
However, strong domestic demand and a resilient services sector would help cushion the blow. Over the longer term, India’s wider tariff gap compared to other Asia-Pacific economies could damage its manufacturing ambitions, especially in high-value sectors like electronics, and may even reverse recent investment gains.
Oil supply challenges if imports cut
The agency also said avoiding the "penalty tariffs," finding sufficient alternative crude supplies in time could prove difficult. Any disruption in oil supply would slow growth, while shifting to non-Russian oil could tighten global supply, push up prices, and feed inflation.
Despite these risks, Moody’s notes that India has strong foreign exchange reserves, which should help the country manage external volatility.
The trade tensions come as the Reserve Bank of India kept interest rates unchanged and maintained a “neutral” policy stance, following a surprise 50-basis-point cut in June.
Investor sentiment shaken by escalating tariff dispute
The escalating US tariffs have added to global trade uncertainty, keeping foreign investors cautious. So far in August, foreign portfolio investors have sold $900 million worth of Indian shares, after pulling out $2 billion in July.
Indian stock market have also felt the pressure, Nifty 50 and BSE Sensex fell 2.9% in July and are down another 0.7% this month, reflecting growing investor anxiety over the trade dispute.
However, on Thursday after an initial sell-off triggered by Trump’s latest tariff move, Dalal Street staged a sharp rebound. The Sensex, which had plunged over 700 points recovered all its losses in a late buying spree to end 79 points higher at 80,623. Nifty50 also closed in the green to settle at 24,596.
You may also like
BBC agree groundbreaking deal to bring boxing back to free-to-air TV
BBC Breakfast issues apology after 'very odd' glitch disrupts live broadcast
Savings rule change as millions more to be hit with tax bills
Boy, 10, who runs 25km like an adult has brutal routine that's sparked outrage
Naomi Osaka fails to congratulate Victoria Mboko in blunt loser's speech
