India better placed to weather US tariffs than peers, Moody’s says

India, with its internal growth drivers, is capable of absorbing external shocks more effectively than its emerging market peers as global trade continues to face headwinds amid uncertainty surrounding the Trump administration’s reciprocal tariffs and rising protectionism, a Moody’s report said.

The report, titled ‘Internal Growth Drivers Anchor the Economy amid US Policy Shifts and Global Uncertainty,’ said India, with a Baa3 stable rating, is well positioned to deal with the adverse effects of US tariffs and global trade disruptions due to its large domestic economy and low dependence on exports.

Moody’s assigned India a Baa3 rating, indicating the lowest investment grade, moderate credit risk, and a “stable outlook.”

Even though the US is the single largest export destination for Indian goods, the report said the direct trade impact on India is limited.

Trump announcing a 90-day pause on reciprocal tariffs and the smaller portion of India’s goods exports in GDP compared to other emerging markets in Asia-Pacific limit the effects of tariffs on India’s growth, she said.

The Moody’s report also emphasized that services sector exports are not entangled in the global trade turmoil and are likely to continue growing.

It said, “The value of services more than doubled to $387 billion, or 47% of total exports in fiscal 2024-25 ended in March 2025 from $158 billion, or 34% of total exports in fiscal 2014-15.”

The report highlighted, “Services exports, such as software and business services, including startups and global capacity centers, typically provide a range of services, including research and development, IT services, business process outsourcing, engineering services, and other higher-value-added services to global clients.”

The credit rating agency said higher US levies on other emerging markets such as China, Vietnam, Thailand, and Cambodia, provide potential opportunities for India to gain market share in the export of textiles, apparel and footwear, and electronics to the US.

To boost job creation, the report called for expanding labor-intensive manufacturing. It cited the government’s ₹229 billion ($2.7 billion) push under the PLI scheme to promote passive electronic components and reduce import reliance.

Government initiatives to spur consumption, ramp up manufacturing, and increase infrastructure spending will cushion global demand weakness, Moody’s said. Robust investment in power, transport, and digital infrastructure is expected to continue over the next 5–7 years.

Easing inflation—down to 3.16% in April—also opens room for rate cuts, while ample banking liquidity supports credit growth.

“Domestic demand underpins India’s growth despite US policy risks,” the report said, highlighting tax relief and infrastructure focus as key drivers of economic resilience.