Moody’s Analytics cuts India’s 2025 growth forecast to 6.1% amid rising US tariff pressures

New Delhi: Moody’s Analytics on Thursday trimmed its calendar year (CY) 2025 growth forecast for India to 6.1%, lowering it by 30 basis points from its March projection, in response to US tariffs.

"Although US President Donald Trump has just declared a 90-day freeze on most of the harsh tariffs announced a week ago and applied a 10% blanket tariff in their place, the April baseline represents the economic toll they will have should they eventually go ahead in full," Moody's Analytics said in a note.

"Cambodia, Laos, Vietnam, Thailand, Taiwan, India, South Korea, Japan, Indonesia and Malaysia were to be subject to new tariffs ranging from 24% to 46% from 9 April. With the exception of China, the latest policy pivot means that all are now looking at a 10% tariff for 90 days," it added.

The Trump administration last week imposed a 27% reciprocal tariff on Indian goods, claiming the South Asian country levies an average of 52% on US imports.

Also read | Tighter US trade policies could reshape APAC economies, offer opportunities to India: Moody’s Ratings

The move strains trade, currency, and capital flows, posing both risks and opportunities for India.

On 9 April, the Trump administration moved to temporarily ease duties on trading partners, including India, with the US reciprocal tariff on India temporarily standing at 10%.

"The big unknown is how negotiations might alter the extent and duration of tariffs in all directions and whether the US will extend its 90-day pause on tariffs for 75 countries," Moody's 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," it added.

Read this | Moody’s raises India’s 2024 growth forecast to 7.1% on better growth in Asia-Pacific

For India, the challenge is largely twofold: managing immediate disruptions and positioning itself for long-term gains.

Meanwhile, the announcement of the reciprocal tariffs comes in the backdrop of a broader slowdown in India’s economic momentum.

GDP growth in the December quarter (Q3, FY25) stood at 6.2%, rebounding from a near two-year low in the previous quarter.

To meet the National Statistical Office’s revised full-year growth projection of 6.5% for FY25, the Indian economy needs to expand by a steep 7.6% in the January–March quarter—an ambitious target amid lingering global uncertainties and subdued domestic demand.

Meanwhile, India’s real GDP growth forecast for FY2025-26 has been lowered to 6.5% from the earlier projection of 6.7%, by the Reserve Bank of India (RBI) during the central bank’s policy review earlier this week.

Also read | State borrowings to surge about 18% in Q4 after slowing Q2 GDP growth

The Asian Development Bank has also recently cut India’s FY26 GDP growth forecast to 6.7% from 7%, citing US tariffs as a key risk to trade, investment, and financial market stability.

In comparison, a recently released EY Economy Watch report projects that India's economy is likely to grow at 6.5% in FY26, emphasizing the need for a well-calibrated fiscal strategy that supports human capital development while maintaining fiscal prudence.

According to Moody’s Analytics, the US reciprocal tariff on Indian imports will hit key sectors like gems, medical devices, and textiles, but overall growth is expected to remain resilient given India's limited reliance on external demand.

However, it expects the RBI to cut interest rates—likely in 25-basis point steps—bringing the policy rate down to 5.75% by the year-end, on the back of easing headline inflation, which combined with earlier tax incentives announced in the budget is likely to support domestic demand and cushion the economy against the impact of tariffs.

And read | Fall in Q1 GDP growth no cause for alarm, say experts, predict 7% growth in FY25

On 9 April, the RBI cut the repo rate by 25 basis points to 6% in its latest policy review.

The rate-setting panel also shifted its policy stance from neutral to accommodative, signalling the likelihood of further repo rate cuts.