India well-positioned to deal with negative effects of US tariffs: Moody's

India is well-positioned to deal with the negative effects of US tariffs and global trade disruptions as domestic growth drivers and low dependence on exports anchor the economy, Moody's Ratings said on Wednesday.

In a note on India, the agency said government initiatives to boost private consumption, expand manufacturing capacity and increase infrastructure spending will help offset the weakening outlook for global demand.

Easing inflation offers the potential for interest rate cuts to further support the economy, even as the banking sector's liquidity facilitates lending.

"India is better positioned than many other emerging markets to deal with US tariffs and global trade disruptions, helped by robust internal growth drivers, a sizable domestic economy and a low dependence on goods trade," Moody's said. 

Besides, the Pakistan-India tensions, including the flare-up earlier in May, would weigh on Pakistan's growth more than on India's.

"In a scenario of sustained escalation in localised tensions, we do not expect major disruptions to India's economic activity because it has minimal economic relations with Pakistan. Moreover, the parts of India that produce most of its agricultural and industrial output are geographically distant from the conflict zones," Moody's said.

However, higher defense spending would potentially weigh on India's fiscal strength and slow its fiscal consolidation.

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. Nonetheless, sectors such as autos, which have some exports to the US, face global trade challenges despite their diversified operations.

Moody's had earlier this month lowered its economic growth projections for the 2025 calendar year to 6.3 per cent, from 6.7 per cent, but its growth rate will be the highest among G-20 economies.

In early April, the US administration announced and then paused for 90 days the implementation of sweeping, country-specific tariffs on trading partners.

It maintained a base tariff of 10 per cent, with exemptions for some sectors and higher tariffs imposed previously for other sectors, including steel and aluminium.