Why S&P Says U.S. Tariffs Won’t Derail India’s Long-Term Growth

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19 Aug, 2025

Why S&P Says U.S. Tariffs Won’t Derail India’s Long-Term Growth

1. S&P’s Key Takeaways

U.S. tariffs unlikely to dent long-term growth
S&P Global Ratings highlighted that India’s long-term growth trajectory remains solid despite high tariffs, citing strong domestic foundations and economic reforms.
Credit rating upgrade reflects confidence
India’s sovereign rating was raised from ‘BBB-’ to ‘BBB’ with a stable outlook—a first since 2007—reflecting robust growth, fiscal discipline, and effective monetary policy.
Domestic economy acts as a buffer
Only about 1–2% of India’s GDP comes from exports to the U.S., making the economy less vulnerable to U.S. trade shocks. Domestic consumption (~85–99% of GDP) forms the core growth driver.
Structural strengths matter more
Infrastructure improvements, business-friendly policies, and continued reforms are key to sustaining and even enhancing India’s growth path ().

2. Broader Perspectives

Short-term growth impacts:
Experts warn that manufacturing and labor-intensive sectors could feel pressure, and GDP might be marginally affected—estimates range from a 0.1% to 0.4% slowdown in FY26.
Moody’s and Morgan Stanley estimates:
Moody’s warns of a potential 0.3 percentage point drag on GDP, while Morgan Stanley suggests an 80 basis point (0.8%) cut unless countered by government action.
Strong domestic demand cushions the blow:
Analysts note that India’s resilient internal demand will likely soften external shocks.
Opportunity in adversity:
Amitabh Kant sees this as India’s “Agneepath moment”—a strategic crisis that could catalyze bold reforms and long-term transformations.

What It Means for Indian Markets

Factor	Market Implication
Credit Rating Upgrade	Positive sentiment, lower borrowing costs, improved investor confidence.
Sectoral Pressure	Export-oriented, manufacturing firms may face margin pressure or delays.
Policy Reforms	Government measures (e.g., diversification, infrastructure, reforms) could bolster long-term growth ().
Domestic Demand Resilience	Consumption-driven sectors remain strong; domestic plays stay attractive.
Strategic Realignment	Push towards China-plus strategies, services growth, foreign investment inflows.

Bottom Line

S&P’s outlook remains firmly optimistic: India’s fundamentals are strong enough to withstand short-term trade shocks. The credit upgrade, robust domestic consumption, and reform momentum all signal continued growth—though challenges in export sectors should be watched closely.

By Nehal Taparia

This content is for educational and knowledge purposes only and should not be considered as investment or Trading advice. Please consult a certified financial advisor before making any investment or Trading decisions.

Our Recent FAQS

Frequently Asked Question &
Answers Here

Q1: Why is S&P confident despite tariffs?

S&P cites India’s limited export exposure to the U.S.—just 1–2% of GDP—and robust domestic demand (~85–99% of GDP). Exemptions in pharma and electronics further shield the economy.

Q2: Could U.S. tariffs hurt India's GDP growth?

Yes, marginally in the short term. Forecasts suggest a potential 0.1%–0.8% dip in growth, particularly affecting export-heavy sectors .

Q3: How will markets react?

Short-term pressure on sectoral stocks (e.g., textiles, electronics) is possible. However, market sentiment overall may stay positive due to the credit rating upgrade and domestic strength.

Q4: What reforms can mitigate tariff impacts?

India is focusing on export diversification, infrastructure upgrades, tax reforms, rural and labor sector reforms, and attracting FDI to sustain competitiveness ().

Q5: Can this be turned into an advantage?

Absolutely. Analysts view this as a catalyst for deep reforms—akin to an “Agneepath moment”—that can unlock long-term economic gains ().