Regarding tensions with Pakistan, Moody’s Ratings said that it doesn’t expect any major disruptions to India’s economic activity. File.
| Photo Credit: Reuters

Portraying a relatively rosy picture of India’s economic resilience, Moody’s Ratings on Monday (May 19, 2025) said that not only is India “well-positioned” to deal with the negative effects of potential U.S. tariffs, but is also not likely to face any significant economic fallout of heightened tensions with Pakistan. 

However, the ratings agency added that U.S. President Donald Trump’s tariff plans could slow global growth, which would also impact India negatively. 

“India is better positioned than many other emerging markets to deal with US tariffs and global trade disruptions, helped by robust internal growth drivers, a sizable domestic economy and a low dependence on goods trade,” Moody’s Ratings said in its report. 

It added that India-made goods exports might even benefit from higher U.S. demand if trade negotiations result in lower U.S. tariffs on India compared to other emerging markets. 

Importantly, Moody’s Ratings also pointed out that Indian exports’ low contribution to GDP — conventionally seen as a weakness of the Indian economy — could in fact mitigate the blow of higher tariffs by the U.S. 

“Even though the U.S. is the single largest export destination for Indian goods, the temporary relief provided by the pause and the smaller portion of goods exports in GDP compared to other emerging markets in Asia-Pacific limit the effects of tariffs on India’s growth,” it said.

The other source of resilience for India’s trade, Moody’s Ratings noted, was that service sector exports are likely to continue growing strongly as they are not directly involved in the global trade uncertainty. 

However, the report noted that business service providers are vulnerable to changes in U.S. immigration policy. 

“Stricter U.S. immigration rules will shrink the labour pool and constrain the operations of Indian service providers that bring in their own employees to the U.S.,” it said. “Service companies have gradually increased onshore hiring in the US but many continue to rely on skilled workers under H1B visas for long-term U.S. assignment, making them susceptible to immigration policy changes and higher costs.

Regarding tensions with Pakistan, Moody’s Ratings said that it doesn’t expect any major disruptions to India’s economic activity from a “sustained escalation in localised tensions” with Pakistan. This is because India in any case has minimal economic relations with that country.

“Moreover, the parts of India that produce most of its agricultural and industrial output are geographically distant from the conflict zones,” the report noted. “However, higher defence spending would potentially weigh on India’s fiscal strength and slow its fiscal consolidation.”