India’s GDP to grow at 6.1% in 2025: Moody’s

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Moody's Analytics revises India's GDP growth forecast to 6.1% in 2025 from 6.4%

Sanjay Rawat
Credits: Sanjay Rawat

Tariff threats from the U.S. has prompted Moody’s Analytics to downwardly revise growth targets for many Asia-Pacific economies including India.

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“We revised India's GDP growth forecast to 6.1% in 2025 from 6.4% in our March baseline. The U.S. is one of India's largest trading partners, so a 26% tariff hovering over imports of Indian goods will heavily impede the trade balance,” Moody’s Analytics said in a statement.

Gems and jewellery, medical devices, and textile industries will be among the worst hit, it said. “Regardless, we expect overall growth to be relatively insulated from the shock since external demand makes up a relatively small portion of GDP,” it added.

The forecast comes a day after Reserve Bank of India’s monetary policy committee (MPC) unanimously slashed the key policy rate by 25 basis points to 6%. Moody’s expects the repo rate at 5.75% by the end of the year.

“Given headline inflation has been easing at a healthy pace, we expect the Reserve Bank of India to lower interest rates, most likely in the form of 25-basis point cuts that take the policy rate to 5.75% by the end of the year. This, paired with tax incentives announced earlier this year, should help boost the domestic economy and dampen the shock of the tariffs on overall growth relative to other vulnerable economies,” it said.

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On Wednesday, Moody's Ratings said the new tariffs on APAC economies are more draconian than market expectations and will be credit negative for the region. Lower-tariff countries like Malaysia, India, and the Philippines might gain market share through trade triangulation to serve the US market, the rating agency said.

Economies in the region with large domestic markets, such as India, could also benefit from companies seeking to access large markets while keeping operating costs reasonable by shifting production to these economies but this would only happen over a number of years, it added.

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 “The new tariffs will hurt the 'China+1' strategy, and an acceleration in supply chain diversification away from China is more uncertain at this stage. However, APAC economies may still be incentivised to deepen trade and investment ties intra-regionally,” said Moody’s.

India also has a relatively low overall exposure but more diversified exports to the US. Across the region as a whole, electronics, machinery and equipment as well as food and textiles are among the most exposed sectors to US demand.

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“This major shift in US trade policy is credit negative for APAC but we expect the vast majority of countries to negotiate rather than retaliate, through strategies such as seeking talks with the US (such as Singapore and Vietnam), establishing bilateral trade agreements (such as India) or buying more US goods (such as Thailand),” said Moody’s.

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