Trump's 50% tariffs on Indian imports can grow FY26, says Moody's

US President Donald Trump’s decision to impose an additional 25% fine rate on Indian imports because he continued to buy Russian oil could shave 0.3 percentage points of India’s FY26 growth, Moody’s ratings said on Friday. Moody’s now expects real GDP growth in FY26 to delay its earlier forecast of 6.3%, as higher rates weigh on the trade. Nevertheless, the resilient domestic demand and a robust service sector are likely to raise the blow, he added. Tariff shock in 21 days The tariff, signed on August 6 and in effect in 21 days, follows a 25% reciprocal duty announced just a week before. Together, they leave India with one of the steepest US rates in Asia-Pacific, the 15-20% facing local peers. Moody’s has warned that the gap can undermine India’s manufacturing ambitions in high value sectors such as electronics, which could reverse the recent investment profits. “Asia-Pacific countries are fighting for a larger part of trade and investment flow amid a restructuring of supply chains introduced by US policy shifts. The executive order determines an effective date of 21 days after signing the order, which is an indication of negotiations in the coming weeks,” Moody’s said. “The reaction of India to these developments will eventually determine the effect on growth, inflation and external position,” he added. The balancing of oil and exports since 2022 has sharply increased the purchases of Russian rough purchases, which helps to contain inflation and restrict the current account deficit. Russian oil accounted for 35.5% of India’s crude imports in 2024, from only 2.2% in 2021, with import values rising to $ 56.8 billion from $ 2.8 billion. Only China buys more. In its report, Moody’s said India has a delicate choice: Continue to acquire cheap Russian oil and the risk of losing competitiveness in its largest export market, or limiting purchases to avoid rates, but to rise alternative supplies, possibly raise oil prices, accelerate inflation and increase the current account deficit. “Imports of Russian crude oil in India rose to $ 56.8 billion in 2024 from $ 2.8 billion in 2021, which corresponds to an increase in India’s share in the total import of crude oil to 35.5% from 2.2%,” the rating agency said. “In 2024, China was the only country that imported more oil from Russia, with China and India exceeding Russia’s other export destinations through various sizes,” Moody said. India’s consumer inflation hit a 2.1% low of 2.1% in June, but a move away from Russian crude oil could tighten global supplies and push prices higher. Moody’s added that India’s spacious Forex reserves should dampen external shocks. Room for compromise The rating agency expects a negotiated compromise in the coming weeks, but warned that any growth -drag can use fiscal measures, even if the government is still committed to having gradual debt consolidation. In April, the RBI reduced its FY26 growth forecast to 6.5% from 6.7%, referring to the global trade and tariff risk after Trump’s earlier reciprocal duties. Goldman Sachs also practiced its real GDP forecast for India to 6.5% for 2025 and 6.4% for 2026, and US exports accounted for almost 4% of India’s GDP. Even a modest slowdown in US demand can sound through the economy, Goldman Sachs said.