India well-positioned to deal with negative effects of US tariffs: Moody's

India is better equipped than many emerging markets to withstand the impact of US tariffs and global trade disruptions, thanks to strong domestic growth drivers and a low reliance on goods exports, a Moody’s Ratings' report highlighted on Wednesday.

The ratings agency highlighted that government initiatives—such as boosting private consumption, expanding manufacturing capacity, and increasing infrastructure investment—will help cushion the economy against weakening global demand.

Easing inflation could also pave the way for interest rate cuts, further supporting growth. Meanwhile, ample banking sector liquidity continues to enable lending, the report noted.

“India’s large domestic economy and limited exposure to global goods trade put it in a stronger position to absorb external shocks,” Moody’s said.

India-Pakistan tensions to impact economy?

The note also touched upon geopolitical risks, stating that recent India-Pakistan tensions are more likely to weigh on Pakistan’s economy than India’s. The key economic hubs in India are far from the conflict zones, and bilateral economic ties remain limited.

However, a prolonged escalation could lead to increased defence spending, which might slow fiscal consolidation efforts and weigh on government finances, as per the report.

Moody’s acknowledged that some sectors—like automobiles, which export to the US—may feel pressure from global trade headwinds, despite their diversified operations. But India’s robust services sector and domestic-focused economy serve as strong buffers.

Earlier this month, Moody’s revised India’s 2025 growth forecast down to 6.3% from 6.7%, though it remains the highest among G-20 nations.

In April, the US announced a new round of targeted tariffs, which it later paused for 90 days. While base tariffs remain at 10%, some sectors—like steel and aluminium—continue to face higher duties.