India is uniquely equipped to weather the negative effects of recently imposed US tariffs and broader global trade disruptions, according to a new assessment by Moody’s Ratings. The agency’s latest report highlights that India’s robust domestic growth drivers, large internal market, and relatively low dependence on exports set it apart from many other emerging economies facing similar external headwinds.
Moody’s notes that the Indian government’s proactive initiatives—ranging from boosting private consumption to expanding manufacturing capacity and ramping up infrastructure spending—are key factors that will help offset the weakening outlook for global demand. The agency points out that India’s economic structure, which is less reliant on goods exports and more anchored in a dynamic service sector, acts as a natural buffer against the volatility of international trade policy shifts.
Government Policies and Economic Fundamentals Drive Resilience:
A number of government initiatives that have strengthened India’s economic resilience are highlighted in the report. While recent reductions in personal income taxes are stimulating domestic consumption, central government infrastructure spending is still driving GDP growth. The economy should be further stimulated by these policies as well as by lowering inflation, which has made it possible for interest rates to be lowered. With increased liquidity, India’s banking industry is also in a strong position to promote expansion and make loans.
Moody’s highlights that India’s retail inflation fell to 3.16% in April 2025, the lowest since July 2019, and wholesale inflation slowed to a 13-month low. The Reserve Bank of India’s recent repo rate cuts have further improved credit conditions, enhancing the country’s ability to absorb external shocks.
Despite Moody’s lowering India’s economic growth forecast for 2025 to 6.3% from 6.7%, the agency still expects India to post the highest growth rate among G-20 countries2. The report also mentions that while higher defense spending—especially in light of recent India-Pakistan tensions—could weigh on fiscal consolidation, the overall impact on economic activity is expected to be limited. Most of India’s agricultural and industrial output comes from regions far removed from conflict zones, and economic ties with Pakistan are minimal.
Sectoral Impact and Opportunities Amid Tariff Uncertainty:
While India as a whole is well-insulated, Moody’s cautions that certain sectors, such as automobiles, which have significant export exposure to the US, may face challenges due to global trade uncertainties. However, these sectors are generally diversified and can adapt to changing market conditions.
Interestingly, the report suggests that India could benefit from the shifting global trade landscape. As the US raises duties on imports from other emerging markets like China, Vietnam, Thailand, and Cambodia, Indian exporters in textiles, apparel, footwear, and electronics may find new opportunities to capture market share in the US. If ongoing trade negotiations between India and the US result in lower tariffs for Indian goods compared to competitors, India-made products could become more attractive in the American market.
Moody’s also points out that most of India’s infrastructure sub-sectors, such as power, transportation, and digital infrastructure, are largely focused on domestic demand and are supported by favorable regulatory frameworks. This focus reduces their vulnerability to global trade disruptions. The agency expects strong demand in these segments to continue attracting capital investment over the next five to seven years.
Domestic Demand and Policy Support Remain Key:
Moody’s asserts that India’s economic outlook remains robust, even in the face of US tariffs and global trade volatility. The combination of a large domestic market, policy-driven growth, and a resilient financial sector positions India to absorb external shocks better than many of its peers.
While uncertainties around tariffs may temporarily delay corporate investments and affect business sentiment, the medium- to long-term prospects for India are positive. The country’s ongoing infrastructure development, favorable demographics, and strong service sector will continue to underpin growth. As global trade patterns evolve, India stands to potentially gain from both its internal strengths and new opportunities arising from shifts in international commerce.
Moody’s concludes that, despite the challenges posed by US tariffs and regional tensions, India’s economic fundamentals and government policies provide a solid foundation for continued growth and stability.
