Limited US access to hit India's manufacturing growth plans, says Moody's

Moody's Ratings on Monday said curtailed access to the US market will diminish prospects for India to develop its manufacturing sector, but the country's domestic demand will remain resilient to these external pressures.

US President Donald Trump has announced a 25 per cent duty on imports from India, which will come into effect from August 7 (9.30 am IST). These will be over and above the existing standard import duty in the United States.

On top of the import duty, Trump has announced imposing a 'penalty' on India for Russian imports. However, the rate of penalty is yet to be announced.

Moody's Ratings, Senior Vice President, Christian de Guzman said the revised tariff rate assessed on Indian goods is significantly above those from other major exporters in the APAC (Asia-Pacific) region, many of which have duty rates between 15 per cent and 20 per cent.

"Curtailed access to the largest economy globally diminishes prospects for India's ambitions to develop its manufacturing sector, particularly in higher value-added sectors such as electronics," Guzman said.

The higher tariffs relative to other countries also disadvantaged India as it vies for a greater share of trade and investment flows away from China, which has been subject to even more severe tariff treatment by the US, he added.

India and the US are currently negotiating a bilateral trade pact. The US is India's largest trading partner, accounting for 18 per cent of India's total merchandise exports in 2024. The $ 80 billion merchandise exports from India to the US are distributed in sectors which also form India's overall major exports.

Guzman said that we expect domestic demand to remain resilient to these external pressures as the Indian economy is less trade-reliant than other large economies in APAC.

"Moreover, the favourable outlook for India's services sector, whose scope and scale are unrivalled in the region, remains intact as associated services exports do not appear to be a major point of contention in bilateral relations with the US," Guzman added.