India's Global Manufacturing Hub Dream Likely to Face Setback

New Delhi: Global rating agency Moody’s Ratings on Friday cautioned that India’s ambition to become a global manufacturing hub may face serious setbacks after the US raised tariffs on Indian exports to 50 percent. It also said that the fallout of tariff hike may also hurt India’s economy or real gross domestic product (GDP) growth, which is likely to slow by around 0.3 percentage points from its current forecast of 6.3 per cent for the fiscal year ending March 2026.

The rating agency flagged concern days after the US President Donald Trump’s announcement of a hefty tariff hike on India, which will be effective from August 27. However, it also ignites hope with resilient domestic demand and the strength of the services sector, which will mitigate the strain on India. “India’s response to high US tariffs will ultimately determine the effect on its growth, inflation and external position,” the rating agency said.

Moody’s also said that countries in Asia-Pacific are vying for a greater share of trade and investment flows amid a restructuring of supply chains triggered by US policy shifts. “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,” it said.

On August 6, the US announced an additional 25 per cent tariff on all Indian imports, in addition to an existing 25 per cent duty, taking the total duty to 50 per cent effective August 27. The White House had said that the measure responds to India's continued purchase of Russian oil.

“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, which is currently its largest export destination, we project that real GDP growth may slow by around 0.3 percentage points compared with our current forecast of 6.3 per cent growth for fiscal 2025-26 (ending March 2026),” Moody's said.

India and the US have been negotiating a bilateral trade agreement since March, with an aim to more than double the bilateral trade in goods and services to $500 billion by 2030 from the current $191 billion. So far, five rounds of talks have been completed. For the sixth round, the US team is visiting India from August 25. The two sides are also looking at an interim trade deal and aiming to conclude the first phase of the agreement by fall (October-November) this year.