Moody’s Analytics has revised India’s real GDP growth forecast for 2025 to 6.1% from 6.4% in its March projection. This adjustment reflects the growing external pressures stemming primarily from heightened US tariffs, rather than a domestic slowdown.

A 26% tariff levied by the US on Indian goods presents a challenge for sectors such as gems and jewellery, textiles, and medical devices, which depend significantly on export demand. While the US has temporarily paused some tariff actions, the threat of further trade restrictions lingers. These policy shifts increase the cost and complexity of trade and have contributed to a deterioration in regional economic outlooks.

Despite this, India’s economy remains less exposed to the global trade cycle compared to many of its regional peers. Exports constitute a relatively small portion of India’s GDP. Therefore, while the affected sectors may feel acute stress, the broader economy is expected to show resilience. Moody’s Analytics see the domestic economy will provide a cushion against external shocks, allowing growth to continue, albeit at a slower pace.

Domestically, the inflation outlook has improved, strengthening the case for monetary easing. Retail inflation for February stood at 3.61%, with food inflation pulled into negative territory due to falling vegetable prices. The RBI now expects inflation in 2025–26 to average 4.0%—the lowest in six years and well within its medium-term target range. Quarterly inflation projections remain in check, barring a modest rise to 4.4% in the January–March quarter.

Against this backdrop, the Reserve Bank of India is likely to lower interest rates incrementally. Moody’s expects another 25 basis point cuts through the year, bringing the policy rate down to 5.75% by year-end. These moves aim to reduce borrowing costs and bolster domestic demand at a time when external conditions are deteriorating.

Fiscal measures will provide complementary support. Earlier this year, the government introduced tax incentives intended to stimulate investment and consumption. Together with monetary easing, these policies are designed to counterbalance the export drag and sustain momentum in domestic economic activity.

Compared with more trade-reliant economies in Asia, such as Vietnam and Taiwan, India appears better positioned. Its lower exposure to global manufacturing supply chains and stronger reliance on domestic demand offer a degree of insulation not available to many other countries in the region.

Although downside risks remain—particularly the potential extension or escalation of U.S. tariffs—the current forecast revision reflects a measured response to unfolding events rather than a signal of economic distress. India’s relative insulation from external demand cycles will likely continue to support moderate but stable growth.