Government initiatives to boost private consumption, expand manufacturing capacity and increase infrastructure spending will help offset the weakening global demand outlook, the agency said in a note.
Furthermore, easing inflation is expected to lead to interest rate cuts, providing support for the economy.
Although Moody’s lowered India’s economic growth forecast for 2025 to 6.3% from 6.7%, this growth rate will be the highest among G-20 countries.
In April, the US announced a reciprocal tariff of 26% on Indian goods.
While this has been paused for 90 days until July 9, the baseline tariff of 10% remains in place.
India is currently negotiating a bilateral trade agreement (BTA) with the US.
“India’s limited reliance on the trade of goods and its robust service sector are mitigants to US tariffs. India-made goods may even benefit from higher US demand if trade negotiations result in lower US tariffs on India compared to other emerging markets,” said the ratings agency.
While tariff uncertainties may delay corporate investments and affect both business and consumer sentiment, India is likely to benefit in the medium to long term.
Moody’s Ratings pointed that higher US duties on other emerging markets such as China, Vietnam, Thailand and Cambodia could present potential opportunities for India to capture market share on the export of textiles, apparel and footwear, and electronics to the US.
Besides, India-Pakistan tensions, such as the recent escalation in May, are expected to impact Pakistan’s economic growth more than India’s, noted the ratings agency. “However, higher defence spending would potentially weigh on India’s fiscal strength and slow its fiscal consolidation,” it said.
