The decision, linked to India’s continued purchase of discounted Russian crude, could erode the country’s manufacturing competitiveness, according to a new report by Moody’s Ratings.
The executive order, issued on August 6, follows a 25 per cent reciprocal tariff announced earlier on July 31, pushing India’s effective tariff rate on US-bound exports to 50 per cent. The new tariffs will come into force from August 28, keeping the door open for possible negotiations.
“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,” Moody’s said Friday.
India’s Atmanirbhar Bharat strategy, focused on boosting domestic manufacturing and reducing external dependence, could lose momentum if US trade penalties tied to Russian oil imports are enforced.
Also Read: Trump rules out trade talks with India amid 50% tariff dispute until…Since 2020, the government has rolled out the Production Linked Incentive (PLI) scheme across 14 sectors to support its Make in India goals. The early results have been mixed. While sectors like mobile manufacturing and pharmaceuticals have reported incremental gains, capital-intensive sectors such as solar modules and semiconductors alongside textiles have seen slower traction. India’s merchandise trade with the United States crossed $131.8 billion in FY25, making the US its largest trading partner. Exports to the US touched $86.5 billion, led by sectors such as textiles, machinery, electronics, and pharmaceuticals, many of which are part of the PLI targets.
Moody’s warns that prolonged tariff friction may weaken export competitiveness and delay investments in key industrial sectors, a speed bump in the way of ‘Make in India’ strategy.
Earlier last week, Prime Minister Narendra Modi took a defiant stance against Trump’s tariff warnings, while encouraging people to buy locally made products.
“The world economy is going through many apprehensions — there is an atmosphere of instability,” Modi said at a rally in Uttar Pradesh on Saturday. “Now, whatever we buy, there should be only one scale: we will buy those things which have been made by the sweat of an Indian.”
India’s Russian crude buys helped put inflation ‘horse’ on tight leash
Moody’s noted that India’s deepening oil trade with Russia since 2022 has helped contain inflation and support the current account. Crude oil imports from Russia rose to $56.8 billion in 2024 from $2.8 billion in 2021, lifting Russia’s share of India’s total crude imports from 2.2% to 35.5%. Only China imported more Russian oil during the year.
Also Read: India takes a re-look at US market access offer; Sectors, barring farm, under review for BTA…
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