India's Resilient Economy Faces US Tariff Turbulence

The Indian economy is bracing for potential headwinds as new US tariffs loom, according to a recent report by Moody's Ratings. These tariffs, imposed in response to India's continued imports of Russian crude oil, could dent the country's growth trajectory. However, strong domestic consumption and a flourishing services sector are expected to mitigate some impacts.

US President Donald Trump, on August 6, enacted an executive order imposing a fresh 25% tariff on Indian goods, citing India's persistent Russian oil purchases. This escalates the earlier 25% tariff, effectively doubling the rate on exports to its largest market. Moody's projects a potential 0.3% reduction in GDP growth from the current forecast of 6.3% for the fiscal year 2025-26.

The new order provides a brief negotiation window of 21 days. India's response will crucially influence the tariffs' effects on growth, inflation, and external balances. Intensified imports of Russian oil since 2022, attracted by discounted prices, have seen these imports account for 35.5% of India's crude intake in 2024. However, curtailing Russian oil to dodge tariffs could pose its own slew of challenges, including higher energy costs and inflation.

While the manufacturing sector, especially high-value industries like electronics and textiles, may endure a hit, robust domestic consumption and services exports could offset some losses in the short term. India's foreign exchange reserves might offer some protection from external shocks, but sustained regional tariff disadvantages threaten its long-term manufacturing and investment ambitions.

(With inputs from agencies.)