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India is better positioned than many other emerging markets to deal with US tariffs and global trade disruptions, Moody’s Ratings said on Wednesday.
India currently has ‘Baa3’ sovereign rating with stable outlook. This is last investment grade.
Talking about strength to deal with global disruptions, the agency has listed robust internal growth drivers, a sizable domestic economy and a low dependence on goods trade as key factors.
“Significant government investments will bolster sectors from infrastructure to manufacturing, at a time that rapid urbanization and a young population is underpinning structural demand for housing and consumer goods,” it said.
This remark has come at a time, when most of the research agencies and even India’s central bank has lowered growth projection for current fiscal.
“Further easing inflation offers the potential for interest rate cuts to further support growth. And India-made goods may even benefit from higher US demand if trade negotiations result in lower US tariffs on India compared to other emerging markets, as was the case in the schedule of reciprocal tariffs announced on April 2,” the agency said in a report on India. However, it mentioned that sectors such as autos, which have some exports to the US, face global trade challenges despite their diversified operations.
Taking note of Income Tax rate cut with effect from April 1, 2025, the report said that domestic demand underpins growth despite risks from US policy shifts.
The central government’s infrastructure spending supports GDP growth, while personal income tax cuts bolster consumption. India’s limited reliance on the trade of goods and its robust service sector are mitigants to US tariffs. India-made goods may even benefit from increased US demand if trade talks lead to lower tariffs on India compared to other emerging markets.
The report also noted that In March 2025, India’s government introduced an ₹22900 crore ($2.7 billion) program under the Production Linked Incentive (PLI) scheme to promote the manufacture of “passive” electronic components aimed at complementing the drive to cultivate a domestic semiconductor industry by reducing reliance on imported components.
More broadly, “the PLI scheme has thus far shown mixed results since its inception in 2020. But successful implementation of the new scheme and greater traction on existing schemes on the back of global trends would boost the domestic value-add for the electronics sector, while ameliorating the stagnation in the share of the manufacturing sector’s contribution to GDP and employment,” the report said.
Currently, a significant portion of the components used to produce electronics and electrical equipment is imported from other economies. Taking Apple Inc. for example, while China remains an important hub for the company’s global production, the iPhone maker has significantly ramped up operations in India.
“Through contract manufacturers Foxconn, Wistron and Pegatron, India is now a manufacturing base for iPhones. Although China will likely remain crucial for Apple’s global supply chain, especially for products sold outside the US, the diversification to India represents a strategic move to balance production costs and mitigate tariff impacts, and is credit positive for India’s manufacturing sector,” it said.
It emphasised that banking sector poised to weather potential turbulence. Healthy profitability and strong capitalization drive the credit strength of Indian banks. Rate cuts will constrain banks’ interest margins, but non-interest income will be bolstered by business volumes and bond gains, the report added.
Published on May 21, 2025
This article first appeared on The Hindu Business Line
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