Moody’s analytics lowers India’s 2025 growth forecast to 6.1% amid US tariff concerns

Moody’s Analytics has reduced India’s growth forecast for the calendar year 2025 to 6.1%, down by 0.3 percentage points from its earlier estimate. The cut comes in response to fresh trade tensions following the US government's decision to impose tariffs on Indian goods.

Last week, the Trump administration introduced a 27% reciprocal tariff on Indian exports, citing India’s average tariff of 52% on US products. Although President Trump later announced a 90-day freeze on the steeper tariffs—replacing them with a 10% flat tariff—Moody’s has warned that these trade moves could still cause economic disruptions.

According to the ratings agency, the new tariffs were originally planned for several Asian countries, including India, Vietnam, Thailand, Japan, and South Korea, ranging from 24% to 46%. However, with the latest pause, a 10% tariff will apply temporarily, except for China.

Moody’s noted that the situation remains highly uncertain, and any future shifts in trade talks could further impact global economic conditions. “Uncertainty is palpable,” it said, pointing to falling and volatile equity markets as signs of financial stress.

The trade policy changes may affect India’s exports, currency, and capital flows, creating both risks and opportunities. Sectors such as gems, textiles, and medical devices are expected to take a hit, although India’s overall economy is relatively shielded due to its limited dependence on exports.

India’s GDP growth had recently shown signs of recovery, reaching 6.2% in the December quarter (Q3 FY25). However, to meet the government's revised target of 6.5% growth for the full fiscal year, the economy needs to grow by 7.6% in the January–March quarter—an ambitious goal given global uncertainties and weak domestic demand.

Adding to the cautious outlook, the Reserve Bank of India (RBI) earlier this week lowered its growth forecast for FY2025-26 to 6.5% from 6.7%. The Asian Development Bank has also cut its FY26 projection to 6.7%, down from 7%, highlighting tariffs as a major risk factor.

On a positive note, easing inflation and recent tax incentives may help boost domestic consumption. Reflecting this, the RBI has cut the repo rate by 25 basis points to 6%, and has adopted an accommodative stance, signaling potential further rate cuts. Moody’s expects the central bank to lower the policy rate to 5.75% by year-end.

Despite trade challenges, Moody’s believes India’s economy remains resilient, supported by strong domestic demand and prudent fiscal policies.