US tariff hike likely to affect India's manufacturing growth, says Moody's

India's aspirations to establish itself as a global manufacturing hub may face substantial obstacles following the United States' decision to increase tariffs on Indian exports to 50%. According to a report by Moody's Ratings, this move significantly undermines India's competitive edge, particularly in the electronics sector. The increase in tariffs comes as a response to India's ongoing importation of Russian oil.

The credit rating agency emphasised that "the much wider tariff gap compared with other Asia-Pacific countries would severely curtail India’s ambitions to develop its manufacturing sector," potentially reversing recent gains in attracting global supply chains.

Moody's report, supported by similar insights from Goldman Sachs, estimates a potential slowdown in India's annual GDP growth by approximately 0.3 percentage points if the situation remains unresolved.

This forecast is based on the assumption that India continues its current import practices from Russia and faces the full impact of the US tariffs. Moody’s estimates that if India continues buying Russian oil and faces the full brunt of the tariffs, annual gross domestic product (GDP) growth could slow by approximately 0.3 percentage points — an assessment echoed by Goldman Sachs earlier this week. But the longer-term risk, it said, lies in the loss of manufacturing momentum.

The implications of these tariffs extend beyond immediate economic impacts, potentially influencing India's strategic positioning in the global manufacturing landscape. The situation underscores the need for diplomatic and economic strategies to mitigate such trade barriers, ensuring sustained growth in the manufacturing sector. As stakeholders await further developments, the focus remains on how India manages its trade policies to overcome these challenges effectively.

On Thursday, US President Donald Trump inked an Executive Order imposing 25 per cent more tariff on India due to New Delhi's continued purchase of Russian oil. The order has been titled -- 'Prohibiting Certain Imports and New Investments With Respect to Continued Russian Federation Efforts To Undermine the Sovereignty and Territorial Integrity of Ukraine'. 

The tariff will be effective for goods entered for consumption or withdrawn from a warehouse for consumption on or after 12:01 am Eastern Daylight Time (EDT), 21 days after the date of this order.