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India's GDP Growth Could Slow to 6% in FY26 if 50% Tariffs are Imposed: Moody's

Written by: Team Angel OneUpdated on: 9 Aug 2025, 5:59 pm IST
Moody’s warns India’s GDP may dip to 6% in FY26 if the US enforces 50% tariffs, though strong domestic demand may soften the impact.
India's GDP Growth Could Slow to 6% in FY26 if 50% Tariffs are Imposed: Moody's
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As per Moody’s Report, it has projected that India’s GDP growth could fall to 6% in FY26, a 30-basis-point decline from its earlier forecast of 6.3%, if the US imposes a 50% tariff on Indian goods starting 27 August. The US government announced on 6 August that it would increase existing duties by an additional 25%, citing India's continued procurement of Russian oil as the reason.

Despite this potential setback, Moody’s believes that robust domestic consumption and a strong services industry will help cushion India’s economy. The agency stated, "Should India continue to procure Russian oil at the expense of the headline 50% tariff rate on goods it ships to the US, which is currently its largest export destination, we project that real GDP growth may slow by around 0.3% points."

Trade Relations and Strategic Risks for India

India and the US have been in bilateral trade agreement (BTA) talks since March 2025, aiming to double trade volume from the current $191 billion to $500 billion by 2030. 5 rounds of negotiations have been completed, with the 6th scheduled for 25 August in India. An interim agreement is also under consideration ahead of the full BTA. 

However, the newly proposed 50% tariff significantly surpasses the 15-20% average imposed on other Asia-Pacific countries. According to Moody’s, "Beyond 2025, the much wider tariff gap compared with other Asia-Pacific countries would severely curtail India's ambitions to develop its manufacturing sector, particularly in higher value-added sectors, such as electronics, and may even reverse some of the gains made in recent years in attracting related investments."

Oil Imports, Inflation and Policy Response

India has substantially increased its crude oil imports from Russia, rising from $2.8 billion in 2021 to $56.8 billion in 2024, largely due to discounted prices amid Western sanctions on Moscow. 

Moody’s notes that this has helped stabilise domestic inflation and the current account balance: "India has been able to procure at least some of its purchases of Russian oil at below global prices, which has helped insulate India's inflation from the pass-through of global commodity price movements, while preempting pressures on its current account deficit.” 

Read More: Moody's Alerts: US 50% Tariffs Threaten India's Manufacturing Hub Ambitions!

Conclusion 

Moody’s warns India’s GDP may dip to 6% in FY26 if 50% US tariffs take effect. Strong domestic demand offers some cushion, but long-term risks to manufacturing and trade ambitions remain. India’s policy response and trade talks with the US will shape future economic impact.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.

Published on: Aug 9, 2025, 12:29 PM IST

Team Angel One

Team Angel One is a group of experienced financial writers that deliver insightful articles on the stock market, IPO, economy, personal finance, commodities and related categories.

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