New Delhi: Moody’s Analytics on Thursday cut India’s GDP growth forecast to 6.1 per cent for 2025 on looming higher US reciprocal tariff threats.
It said the US is one of India’s largest trading partners, so a 26 per cent tariff hovering over imports of Indian goods will heavily impede the trade balance.
“We revised India’s GDP growth forecast to 6.1 per cent in 2025 from 6.4 per cent in our March baseline,” said the Moody’s Analytics report titled ‘APAC Outlook: U.S. Versus Them’.
It said gems and jewellery, medical devices, and textile industries will be among the worst hit.
Regardless, we expect overall growth to be relatively insulated from the shock since external demand makes up a relatively small portion of GDP, Moody’s Analytics said.
Given headline inflation has been easing at a healthy pace, we expect the Reserve Bank of India to lower interest rates, most likely in the form of 25-basis point cuts that take the policy rate to 5.75 per cent by the end of the year.
“This, paired with tax incentives announced earlier this year, should help boost the domestic economy and dampen the shock of the tariffs on overall growth relative to other vulnerable economies,” Moody’s said.
In a major relief for countries, US President Donald Trump on Wednesday deferred by 90 days the reciprocal tariffs that was to come into effect from April 9 on 75 countries with which the US has a trade imbalance.
The US, however, raised the tax rate on Chinese imports to 125 per cent “effective immediately”.
However, the higher 10 per cent tariff, which was effective from April 5, will continue. In case of India, the additional duty of 26 per cent to be paid for exports to the US has been put on hold for 90 days.
Moody’s Analytics said uncertainty is palpable, with tumbling and volatile equity markets headlining financial market turbulence.
The negative and pervasive impact of a sustained rise in uncertainty cannot be understated. Household and business sentiment is crumbling, and if the calamity continues, monetary policy easing that was supposed to characterise 2025 will lose some of its potency, it said.
Also, households won’t want to spend more when the environment is so uncertain, regardless of stronger purchasing power, and businesses will hold back on additional investment as they navigate chaos, Moody’s Analytics said.
As tariffs increase the cost and complexity of trade, they weaken global growth prospects.
“The ‘Liberation Day’ tariffs declared last week increased the odds of a global recession. Under those tariffs, inflation across Asia would stay subdued amid weaker trade and growth dynamics,” it added.
Inflation in the US, however, would rise as tariffs increased prices of producer and consumer goods, Moody’s Analytics added.
