Moody's Sees Limited Tariff-Hit On Indian Economy, But Pegs FY26 GDP Growth At 6.5%

Moody's Ratings on Monday said it expects India to remain the fastest growing G20 economy and has forecasted GDP growth at 6.5% in fiscal year 2026. In its report, the ratings agency also added that the 50% tariffs imposed by US President Donald Trump will have limited impact in the near-term period.

"The US' imposition of high tariffs will have limited negative effects on India's economic growth in the near term," Moody's said. However, it may constrain potential growth over the medium to long term by hindering India's ambitions to develop a higher value-added export manufacturing sector, it added.

The rating agency further said that any negotiations will result in less punitive rates, while the market-oriented foreign investment will also remain robust.

In an apparent reference to Washington's recent move to hike H-1B visa fees, Moody's said that the constraints over new applications for skilled worker visas and potential levies on US businesses that outsource operations offshore" is not expected to significantly weigh on workers' remittances or India's services exports". As such, risks of a significant widening of India's current account deficits will remain limited, it added.

Moody's 6.5% growth forecast for FY26 comes in the backdrop of India's real GDP growth moderating in the last financial year to 6.5% from 9.2% in fiscal 2024. The forecast of 6.5% is on the basis of the government's continued emphasis on capital expenditure, lower inflation and the consequent easing of monetary policy, which will support robust domestic consumption and investment.

The rating agency on Tuesday also affirmed the Government of India's long-term local and foreign-currency issuer ratings and the local-currency senior unsecured rating at Baa3. It also affirmed India's other short-term local-currency rating at P-3. The outlook remains stable.

Strong GDP growth and gradual fiscal consolidation will lead to only a very gradual decline in the government's high debt burden and will not be sufficient to materially improve weak debt affordability, especially as recent fiscal measures to reinforce private consumption erode the government's revenue base, it said.