Moody’s Flags US Tariffs as Risk to India’s Growth and Manufacturing Goals

Moody’s warns that US tariffs of 50% on Indian goods could slow GDP growth, hurt manufacturing ambitions, and widen the current account deficit. The move, tied to India’s Russian oil imports, is already unsettling investors, with markets falling and foreign funds exiting amid mounting trade tensions.

India’s economic ambitions face fresh challenges as Moody’s Ratings warns that steep US tariffs on Indian imports could slow growth and derail the country’s manufacturing push. The alert comes after US President Donald Trump raised duties on Indian goods to a hefty 50%, citing New Delhi’s continued purchases of Russian oil.

The move, which adds an extra 25% to an earlier tariff, places India at a disadvantage compared to other Asia-Pacific nations facing lower trade barriers. Moody’s estimates the tariffs could trim India’s real GDP growth by about 0.3 percentage points from its current projection of 6.3% for the fiscal year ending March 2026.

The ratings agency cautioned that the widened tariff gap could harm India’s efforts to boost high-value manufacturing, such as electronics production, and may even reverse investment gains achieved in recent years. Curtailing Russian oil imports to ease US trade pressure could also complicate India’s search for reliable alternative crude supplies.

Moody’s further warned that higher import costs could expand India’s current account deficit, especially if foreign investment inflows weaken amid diminished tariff competitiveness. While a negotiated settlement remains possible, the scale of growth impact could influence New Delhi’s fiscal strategy.

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Investor sentiment has already been shaken, with foreign portfolio investors pulling out $900 million from Indian equities in August after $2 billion in outflows in July. Market benchmarks Nifty 50 and Sensex slipped 2.9% in July and are down 0.7% so far in August as trade tensions mount. The Reserve Bank of India has held interest rates steady, maintaining a neutral stance despite the uncertain global trade outlook.