India’s GDP may slow to 6% in FY26 amid US 50% tariff :Moody's

India’s GDP growth could slip to 6% in FY26 from the current forecast of 6.3% if the United States goes ahead with imposing a 50% tariff on Indian imports from August 27, Moody’s Ratings warned on Friday. The projected 30 basis-point slowdown comes as the steep duty threatens to hit exports to the U.S., India’s largest trade partner.
On August 6, Washington announced an additional 25% tariff on all Indian imports—on top of an existing 25% duty—citing New Delhi’s continued purchases of Russian oil. The combined levy would place India among the most heavily taxed U.S. trading partners, far above the 15–20% duties faced by other Asia-Pacific economies.“Should India continue to procure Russian oil at the expense of the headline 50% tariff rate on goods it ships to the U.S., we project that real GDP growth may slow by around 0.3 percentage points compared with our current forecast of 6.3% growth for fiscal 2025–26 (ending March 2026),” Moody’s said.
Despite the expected drag, the ratings agency said India’s resilient domestic demand and strong services sector would help cushion the blow. The overall impact will also depend on New Delhi’s policy response to higher U.S. tariffs, particularly in managing growth, inflation, and its external balance.India and the U.S. have been in talks over a bilateral trade agreement (BTA) since March, aiming to more than double goods and services trade to $500 billion by 2030 from the current $191 billion. Five rounds of negotiations have been completed, and a sixth is scheduled for August 25 in New Delhi, with both sides eyeing a first-phase agreement by October–November 2025. Discussions are also underway on an interim trade deal ahead of the BTA,according to information.
Moody’s urged that beyond 2025, the significant tariff gap compared with other Asia-Pacific countries could undermine India’s ambition to develop high-value manufacturing sectors such as electronics, and may even reverse recent gains in attracting investment.Since 2022, India has sharply increased imports of Russian crude—rising from $2.8 billion in 2021 to $56.8 billion in 2024—taking advantage of discounted prices. This strategy has helped shield inflation from global commodity price swings and eased pressure on the current account deficit.The agency noted that India has sufficient foreign currency reserves to withstand external volatility. “The magnitude of the drag on growth from tariff obstacles will influence the government’s decision to pursue a fiscal policy response, although we anticipate the government will adhere to its focus on gradual fiscal and debt consolidation,” Moody’s said.

(Business Correspondent)