Indian economy to reduce by 0.7% in 2025 on back of 50% U.S. tariffs: Moody's Analytics

The U.S. tariffs imposed by the President Donald Trump-led administration is set to impact the Indian economy significantly. According to Moody’s Analytics, the 50% tariffs are set to reduce the country’s GDP for 2025 by 0.7%.

“We think that the announced tariffs will reduce 2025 GDP growth by 0.3%. Some of this is also due to lower global growth and higher uncertainty. However, if tariffs ratchet up to 50%, the reduction in India’s GDP will be greater and could be as high as 0.7%,” Gaurav Ganguly, Head of International Economics, Moody's Analytics, told Fortune India.

Ganguly added that the changing tone from the U.S. toward India will not only impact its trade position but also its efforts to become a global manufacturing hub, hinting at possible delays in giants, such as Apple, fulfilling their India commitments.

On August 6, President Trump signed an executive order imposing an additional 25% “penalty” tariff on imports from India, for continuing to buy Russian oil, raising overall tariffs on Indian goods to 50%. This followed from the 25% reciprocal tariffs announced earlier, widening the gap with the 15–20% levies on other Asia-Pacific (APAC) nations.

Ganguly thus, emphasised that this requires India to rework its global trade strategy.

“Like many other countries, India needs to consider how best to improve its resilience, whether this is by boosting internal demand, or by forging alliances with the EU, China and other countries and trade blocs,” Ganguly adds.

However, degrowth is on the cards for all tariff-affected APAC economies. In a recent note, Moody’s Analytics highlighted that tariffs may lead to lower growth, but a recession may not follow from them.

“But, while growth will be slower, the global economy will not crash. We forecast global GDP to rise by a cumulative 7.8% between 2026 and 2028, compared with our pre‑election forecast of 8.5% made in October 2024. All major regions and countries are expected to expand over this period,” the note added.

Yet, as chances of higher tariffs are plausible, countries including India and Vietnam will remain ‘economically worse off than before the U.S. elections.’

And U.S. itself will be facing the steepest downgrade to GDP growth due to these tariffs.

“Although the U.S. remains the world’s largest economy, it represents only about 10% of global goods trade. As supply chains adjust and trade flows reroute, many countries are likely to establish alternative arrangements that circumvent the U.S. Ultimately, it is the U.S. economy—at the epicentre of the disruption—that has endured the most significant downgrade,” the note added.