US Tariffs Threaten India’s Growth, Moody’s Sees GDP Slowing To 6% in FY26

New Delhi: Moody’s Ratings has said India’s economy could slow down in the financial year 2025-26 if the United States puts a 50 percent import tax on Indian goods. Right now, Moody’s expects India to grow by 6.3 percent during that year. But if the US enforces these new tariffs starting August 27, India’s growth could drop to 6 percent, a fall of 0.3 percent.

Why the US Is Raising Tariffs

On August 6, the US government announced that it will add a new 25 percent import duty on Indian products, making the total tariff 50 percent. This move is a response to India continuing to buy oil from Russia, despite Western sanctions on Moscow due to the war in Ukraine.

Other countries in the Asia-Pacific region are facing lower US tariffs—only 15 percent to 20 percent—which puts India at a disadvantage.

India May Feel the Pressure, But Not Too Much

According to Moody’s, strong local demand and a booming services sector will help reduce the negative impact. However, how India chooses to respond to the new tariffs will decide how big the effect will be on inflation, trade balance, and overall growth.

India has been buying cheaper Russian oil since 2022. In 2024, its Russian crude oil imports jumped to USD 56.8 billion, up from just USD 2.8 billion in 2021. This has helped keep inflation under control and reduced the effect of global oil price hikes on India’s economy.

Trade Talks Continue

Despite the tension, India and the US are still talking. They’ve been working on a Bilateral Trade Agreement (BTA) since March 2025. Their goal is to raise total trade to USD 500 billion by 2030, from USD 191 billion currently. So far, five rounds of talks have taken place. The sixth round will happen in India from August 25, and both sides are hoping to reach an early trade deal by October or November.

Long-Term Risks for India’s Industry

Moody’s also warned that if the high tariffs remain in place for a long time, it could hurt India’s dreams of becoming a major manufacturing hub. Especially in high-tech sectors like electronics, the cost difference with other Asian countries might drive investors away from India.

Fiscal Outlook Remains Stable

India still has enough foreign currency reserves to handle short-term shocks. Even if tariffs hurt growth, Moody’s believes the Indian government will stick to its long-term plan of slowly reducing debt and keeping public finances in check.