NEW DELHI: India is well positioned to deal with the negative effects of US tariffs and global trade disruptions due to its large domestic economy and low dependence on exports, Rating agency Moody’s has said in a recent report.
It says that government initiatives to boost private consumption, expand manufacturing capacity and increase infrastructure spending will help offset the weakening outlook for global demand. It says that India's limited reliance on the trade of goods and its robust service sector are mitigants to US tariffs
“India-made goods may even benefit from increased US demand if trade talks lead to lower tariffs on India compared to other emerging markets,” it says in its report released on Wednesday.
According to it, homegrown demand shields nonfinancial companies against tariffs. Further, infrastructure development and favorable demographics would underpin the businesses of India's nonfinancial companies.
“Significant government investments will boost sectors such as construction, mining and manufacturing, while urbanization and a young population will fuel demand for housing and consumer goods. However, sectors with exports, like automotives, are exposed to global trade challenges, despite diversified operations,” it says.
It highlighted the fact that India's sound banking market and stable credit conditions underscore its economic strength despite global volatility. However, it feels a deterioration in global economic and credit conditions can have knock-on effects.
“Easing inflation offers the potential for interest rate cuts to further support the economy, even as the banking sector's liquidity facilitates lending,” says Moody’s.
It further says that India’s banking sector is poised to weather potential turbulence. Healthy profitability and strong capitalization drive the credit strength of Indian banks, it says, adding that domestic conditions remain favorable because of government capital spending, tax cuts and monetary easing.
On the Pakistan-India tensions, it says the recent flare-up between the two nations would weigh on Pakistan's growth more than on India's.