India is well-positioned to weather the negative impact of increased US tariffs and the resulting disruptions in global trade, Moody's said.
“India is better positioned than many other emerging markets to weather rising US tariffs and disruptions in global trade, supported by robust domestic growth drivers, a large domestic economy and low dependence on exports,“ the agency said.
These factors serve as the backbone of the Indian economy. The South Asian republic's government's initiatives to stimulate private consumption, expand manufacturing capacity and increase infrastructure spending will help offset the worsening outlook for global demand, Moody's analysts said. Lower inflation in India opens up opportunities for interest rate cuts to further support the economy and banking sector.
Tensions between India and Pakistan, including the military conflict between the two countries in early May, will have a greater impact on the health of the Pakistani economy and less on India's. “With the escalating tensions between New Delhi and Islamabad, we do not expect major disruptions to the Indian economy, which has minimal economic ties with Pakistan. The regions of India that produce the majority of its agricultural and industrial products are geographically distant from the conflict zones with Pakistan,“ Moody's said. However, rising defense spending could have a negative impact on India's fiscal sustainability.
Earlier in May, Moody's cut its forecast for India's economic growth in the calendar year 2025 to 6.3% from 6.7%, but said India's GDP growth rate during that period would be the fastest among G20 economies.