India to take modest hit from US tariffs, but global risks loom: Moody’s

India’s economy is likely to weather the latest wave of US tariff hikes with only limited fallout, Moody's Ratings said in a report Wednesday. But it warned that broader global trade tensions could weigh on economic growth and credit conditions worldwide.

The rating agency now expects India’s GDP growth to slow slightly to a range of 5.5–6.5% in 2025, down from its earlier estimate of 6.6%. The downgrade is attributed to weaker global demand and declining merchandise exports, particularly to the US.

India’s exports to the US account for 6.6% of nominal GDP, placing it among economies with moderate exposure to Washington’s protectionist push, the report said.

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India's trade surplus with the US jumped 16.6% in the just-ended financial year, ballooning to $41.18 billion in FY25 from $35.32 billion in the previous year, according to commerce ministry data. 

Persident Donald Trump raised tariffs on Indian goods exports to 27% on 2 April, complaining of rising US deficit, before announcing a 90-day pause on tariff hikes on all countries on 9 April.

Assessing the fallout of the US administration’s new tariff regime—a universal 10% levy and a 145% duty on Chinese imports—Moody’s said India is relatively better positioned than major Asian manufacturing hubs like China, Taiwan and South Korea. China’s growth, for instance, could slip to 4% or lower.

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Still, the agency flagged that the broader credit environment may turn fragile as higher trade barriers slow global commerce and investment. While Moody’s focused on macroeconomic risks, the report did not delve into sector-specific or domestic policy responses.

India plays it cool, but risks mount

New Delhi has so far refrained from retaliatory moves and is taking a measured approach to the US tariffs. It is prioritising negotiations under the Bilateral Trade Agreement (BTA) framework, while reviewing tariff and non-tariff barriers flagged by Washington—including certain Quality Control Orders, as Mint reported on 9 April.

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With key export sectors facing fresh headwinds, the Indian government is actively scouting new markets. Sectors such as gems and jewellery and marine products—especially shrimps—could be hit hard if a proposed 26% duty kicks in after the 90-day pause. India is working to diversify destinations for these vulnerable exports, as reported by Mint on 10 April.

Moody’s warned that the new US tariff regime is already unsettling global markets and could lead to a significant tightening in credit conditions. Despite the temporary pause, the sweeping 145% duty on Chinese goods and a blanket 10% rate on others is expected to dampen investment sentiment, push up prices, and raise default risks across sectors.

The agency noted that while its credit ratings already account for a range of trade-related risks, persistent shifts in global trade policy may warrant future rating revisions. “Defaults will be higher than previously expected,” it said, forecasting mounting credit stress in the quarters ahead. 

The new tariff regime—though softened from initial proposals—remains harsher than anticipated and has already prompted retaliation from China. While carve-outs, such as exemptions for smartphones, may provide short-term relief, Moody’s called the overall tariff framework “sticky,” driven by Washington’s revenue objectives and its broader pivot away from trade reliance.

The economic impact is likely to be uneven but far-reaching. 

Moody’s estimates the tariffs will shave at least one percentage point off US GDP this year. Citing the Yale Budget Lab, it said American consumers now face an average effective tariff burden of 27%, with price hikes of up to 3% expected soon.

Lower-income households will bear the brunt—disposable incomes for the bottom third could shrink by more than 4%, it said.

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Even as companies use the 90-day pause to adjust supply chains, Moody’s warned that uncertainty beyond that window is already crimping business plans and eroding consumer confidence. Tighter financial conditions, including wider bond spreads and falling equity prices, are also likely to hit lower-rated firms’ ability to refinance debt.

The report flagged three key risk channels: direct trade exposure, macroeconomic weakness, and financial market tightening. Non-financial companies reliant on US imports are most exposed. Sovereigns and banks, while less directly affected, may feel the strain via broader economic spillovers, Moody’s said.