Business EconomyPosted at: Aug 8 2025 11:47AM


US 50 percent tariff puts India in economic balancing act: Moody’s Ratings

Chennai, August 8 (UNI) India will have to strike a balance between the domestic inflation and potential export loss as well as broader economic fallout from the United States’ newly imposed 50 per cent import duty (25 percent reciprocal duty and 25 percent penalty for buying oil from Russia), said Moody’s Ratings.
The tariff comprising a 25 per cent reciprocal duty and an additional 25 per cent penalty for India’s purchases of Russian oil was authorised by US President Donald Trump through an executive order signed on August 6. The penalty takes effect 21 days after signing, leaving a window for negotiations.
Moody’s Ratings said the additional tariff increases the potential strain from the 25 percent rate for the so-called reciprocal tariff that was announced the previous week because it widens the gap compared with the 15-20 percent tariff rates for other countries in Asia-Pacific.
Countries in Asia-Pacific are vying for a greater share of trade and investment flows amid a restructuring of supply chains set off by US policy shifts.
India's response to these developments will ultimately determine the effect on its growth, inflation and external position.
India has increasingly ramped up its crude oil imports from Russia since 2022 as demand from the latter's traditional off takers dried up amid sanctions tied to its invasion of Ukraine.
India has been able to procure at least some of its purchases of Russian oil at below global prices, which has helped insulate India's inflation from the pass-through of global commodity price movements, while preempting pressures on its current account deficit.
India's imports of Russian crude rose from USD 2.8 billion in 2021 to USD 56.8 billion in 2024 , corresponding to a rise in India's share of total crude oil imports from 2.2 per cent to 35.5 per cent. This has helped keep inflation in check and reduced pressure on the current account deficit.
Moody’s Ratings said, should India continue to procure Russian oil at the expense of the headline 50 per cent tariff rate on goods it ships to the US, the real GDP growth may slow by around 0.3 percentage points compared with the agency’s current forecast of 6.3 per cent growth for fiscal 2025-26 (ending March 2026).
However, resilient domestic demand and the strength of the services sector will mitigate the strain.
Beyond 2025, the much wider tariff gap compared with other Asia-Pacific countries would severely curtail India’s ambitions to develop its manufacturing sector, particularly in higher value-added sectors such as electronics, and may even reverse some of the gains made in recent years in attracting related investments.
On the other hand, a decision to curtail Russian oil imports to avoid the imposition of the penalty tariff could pose difficulties in procuring alternative sources of crude petroleum in sufficient amounts and in a timely fashion, proving disruptive to economic growth if the overarching supply of oil to the economy is interrupted.
Since India is among the world's largest oil importers, a shift toward non-Russian oil would tighten supply elsewhere, raise prices and pass through to higher inflation.
Still, headline consumer price index inflation reached a multi-year low of 2.1 per cent year on year in June.
The consequently larger import bill would also contribute to a wider current account deficit against the backdrop of weaker tariff competitiveness that potentially undermines investment inflows.
Nevertheless, India retains sufficient foreign-reserve currency buffers to weather external volatility.
Moody’s Ratings expect a negotiated solution that falls between the two scenarios described above.
“The magnitude of the drag on growth from tariff obstacles will influence the government's decision to pursue a fiscal policy response, although we anticipate the government will adhere to its focus on gradual fiscal and debt consolidation,” Moody’s Ratings said.
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