How India is Navigating US Tariffs and Global Trade Challenges

India's Economic Resilience Amid Global Trade Disruptions

New Delhi: According to Moody's Ratings, India is in a strong position to mitigate the adverse impacts of US tariffs and global trade disruptions, thanks to its robust domestic growth factors and minimal reliance on exports.

The agency highlighted that government efforts aimed at enhancing private consumption, expanding manufacturing capabilities, and increasing infrastructure investments will counterbalance the declining global demand outlook.

With easing inflation, there is potential for interest rate reductions, which could further bolster the economy, supported by the banking sector's liquidity that encourages lending.

Moody's noted, "India is more equipped than many emerging markets to handle US tariffs and global trade issues, backed by strong internal growth, a large domestic market, and low reliance on goods trade."

Additionally, tensions between India and Pakistan, particularly the recent escalation in May, are expected to impact Pakistan's growth more significantly than India's.

"In the event of ongoing localized tensions, we do not foresee major disruptions to India's economic activities, as its economic ties with Pakistan are minimal. Furthermore, the regions in India responsible for most agricultural and industrial production are geographically removed from conflict areas," Moody's stated.

However, increased defense expenditures could potentially strain India's fiscal health and hinder fiscal consolidation efforts.

The central government's infrastructure investments are crucial for GDP growth, while cuts in personal income tax are expected to enhance consumption.

India's limited dependence on goods trade and its strong service sector serve as buffers against US tariffs. Nevertheless, industries like automotive, which have some exports to the US, may still face global trade hurdles despite their diversified operations.

Earlier this month, Moody's revised its economic growth forecast for the 2025 calendar year down to 6.3 percent from 6.7 percent, although this rate remains the highest among G-20 nations.

In early April, the US government announced a pause on the implementation of extensive, country-specific tariffs on its trading partners for 90 days, maintaining a base tariff of 10 percent while offering exemptions for certain sectors and imposing higher tariffs on others, including steel and aluminum.