BIG concern for India as Trump's 50 pc tariffs could lead to 6% GDP slowdown in…; Moody's issues big warning, says India's manufacturing sector could…
Trump Tariffs: India's GDP growth will likely slow down to 6 percent in the current financial year if the 50 percent tariffs imposed by US President Donald Trump on Indian imports come into effect from August 27, while its budding manufacturing will also take a severe hit, Moody's Ratings said Friday. What did Moody's say?
'Should India continue to procure Russian oil at the expense of the headline 50 per cent 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 per cent growth for fiscal 2025-26 (ending March 2026),' Moody's said.
The US-based ratings agency noted that the strain caused by Trump tariffs could be mitigated by India's strong services sector, and resilient domestic demand, however, India's response to high US tariffs will ultimately determine the effect on its growth, inflation and external position. Trump tariffs on India
On August 6, Donald Trump signed an executive order imposing an additional 25 percent tariffs on Indian goods, raising the total levy to 50%. The US President called the additional tariffs on India as a 'punishment' for purchasing Russian oil and weapons, as he accused New Delhi of 'funding' Moscow's war on Ukraine.
'I find that the Government of India is currently directly or indirectly importing Russian Federation oil. Accordingly, and as consistent with applicable law, articles of India imported into the customs territory of the United States shall be subject to an additional ad valorem rate of duty of 25 percent,' the order read.
The additional 25 percent tariffs will come into effect from August 27. Why Trump tariffs could dent India's manufacturing sector?
Meanwhile, Moody's also warned that the high tariffs will also negatively impact India's growing manufacturing sector, including high-value products like electronics, because of lower tariffs on other Asia-Pacific countries.
'Beyond 2025, the much wider tariff gap compared with other Asia-Pacific countries would severely curtail India's ambitions to develop its manufacturing sector, particularly in higher value-added sectors, such as electronics, and may even reverse some of the gains made in recent years in attracting related investments,' it said.
The US has imposed 15-20 percent import duty on other Asia-Pacific countries, while slapping with a 50 percent tariff rate.
The ratings agency said Asia-Pacific countries are vying for a greater share of trade and investment flows amid a restructuring of supply chains triggered by US policy shifts. How India could absorb impact of tariffs?
Moody's noted that India has managed to 'procure at least some of its purchases of Russian oil at below global prices, which has helped insulate India's inflation from the pass-through of global commodity price movements, while preempting pressures on its current account deficit.'
Since 2022, India has increasingly ramped up its crude oil imports from Russia as demand from the latter's traditional offtakers dried up amid sanctions tied to its invasion of Ukraine. In 2024, India's imports of Russian crude rose to USD 56.8 billion from USD 2.8 billion in 2021.
Moody's said India retains sufficient foreign-reserve currency buffers to weather external volatility.
'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,' said the US-based rating agency. India-US trade deal
Notably, India has been negotiating a bilateral trade agreement (BTA) with the United States since March. The two countries have held five rounds of talks, while a US teams is scheduled to visit India on August 25 for the sixth round.
However, a trade deal seems unlikely as Donald Trump has categorically said that India-US trade talks will not resume until the dispute over tariffs is resolved. 'No, not until we get it resolved,' Trump told reporters in the Oval Office on Thursday when asked whether he expected the talks to resume.
(With inputs from agencies)
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