(MENAFN- KNN India) New Delhi, Aug 8 (KNN) India's aspirations to establish itself as a global manufacturing powerhouse may encounter obstacles following the United States' decision to impose substantial tariff increases on Indian exports, reaching 50 percent, according to a recent analysis by Moody's Ratings.

The credit rating agency warns that this tariff escalation could substantially undermine India's competitive position in high-value manufacturing sectors, particularly electronics.

The tariff implementation stems from Washington's objections to India's continued procurement of Russian oil. Moody's assessment indicates that the expanded tariff differential between India and other Asia-Pacific nations could severely impede India's manufacturing sector development ambitions.

The agency cautions that recent progress in attracting global supply chains to Indian facilities may face reversal if the trade dispute remains unresolved.

As the United States' primary trading partner in South Asia, India faces direct impacts on sectors fundamental to its 'Make in India' initiative and supply-chain diversification strategy.

The affected industries include electronics, pharmaceuticals, and machinery manufacturing.

Economic projections from Moody's suggest that continued Russian oil purchases combined with full tariff exposure could reduce India's annual gross domestic product growth by approximately 0.3 percentage points.

Goldman Sachs has issued similar assessments this week. However, Moody's emphasises that the more significant long-term concern involves potential loss of manufacturing sector momentum.

Recent years have seen India actively positioning itself as an alternative manufacturing destination to China. Government initiatives have included launching incentive programs, enhancing infrastructure development, and promoting investment in electronics, semiconductors, and advanced technology sectors.

These efforts have generated measurable results, with multinational companies relocating portions of their supply chain operations to India.

Moody's analysis suggests the tariff increase could compromise this progress by reducing the competitiveness of Indian exports in the US market, potentially diminishing India's attractiveness to foreign investors.

Additionally, if India opts to reduce Russian oil imports to avoid US penalties, the transition could create oil supply disruptions and increase energy costs, placing additional pressure on energy-intensive industries.

The rating agency notes that any shift away from Russian oil would contribute to tighter global supply conditions, elevated prices, and increased inflationary pressures.

(KNN Bureau)

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