Trump’s 50% Tariff Threatens India’s Atmanirbhar Bharat Goals, Warns Moody’s

As US President Donald Trump signed an executive order imposing an additional 25% penalty tariff on Indian exports—on top of the existing 25%—India’s self-reliance ambitions under the Atmanirbhar Bharat initiative face serious headwinds, a new Moody’s Ratings report has warned.

The fresh tariff comes in response to India’s continued purchase of Russian crude oil despite Western sanctions. Moody’s noted that the move could significantly erode India’s manufacturing competitiveness, especially in high-value sectors such as electronics.

“Beyond 2025, the much wider tariff gap compared with other Asia-Pacific countries would severely curtail India’s ambitions to develop its manufacturing sector,” the report stated.

Reacting to Trump’s tariffs, Prime Minister Narendra Modi urged citizens to prioritise locally made goods. Addressing a rally in Uttar Pradesh, he said: “The world economy is going through many apprehensions — there is an atmosphere of instability. 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.”

The Ministry of External Affairs condemned the US action, accusing Washington of singling out India over its trade with Russia, while pointing out that the US and EU also import Russian energy. Trump’s penalty tariffs are set to take effect on August 28, leaving a narrow window for possible negotiations.

Moody’s cautioned that the Atmanirbhar Bharat strategy could lose momentum if US trade penalties tied to Russian oil imports are enforced. The Central government had launched Production-Linked Incentive (PLI) schemes across 14 sectors to boost the Make in India mission in 2020, but prolonged trade tensions could weaken export competitiveness, delay investments, and slow industrial growth.

India’s deepening trade ties with Moscow have been a key factor in controlling inflation and narrowing the current account deficit. Following the Russia–Ukraine conflict, discounted Russian crude imports jumped from $2.8 billion in 2021 to $56.8 billion in 2024, pushing Russia’s share of India’s oil imports from 2.2% to 35.5%. This has helped bring headline inflation down to a multi-year low of 2.1% in June.

However, Moody’s projects that if India maintains current oil imports from Russia while absorbing a 50% tariff on US-bound exports, real GDP growth could decline by 0.3 percentage points from the projected 6.3% for FY26. Conversely, cutting Russian oil imports to avoid tariffs could raise procurement costs, drive inflation higher, widen the current account deficit, and threaten domestic energy security.

While Moody’s expects India to maintain gradual fiscal and debt consolidation, it noted that the country’s healthy foreign exchange reserves provide a buffer against external shocks.