US tariff impact: S&P says India’s long-term growth story intact; cites reforms and robust domestic demand

S&P Global Ratings on Tuesday said that high US tariffs are unlikely to derail India’s long-term growth prospects, citing the government’s focus on reforms, infrastructure investment and improving living standards.The ratings agency, which recently upgraded India’s sovereign credit rating to ‘BBB’ with a stable outlook after 18 years, pointed to strong economic fundamentals and fiscal discipline as key drivers, PTI reported. “Going forward, we expect this growth dynamics will continue to play out over 3 years with growth averaging about 6.8 per cent. If infrastructure and connectivity improve in India, it will remove bottlenecks that are hindering long-term economic growth and bring India's potential growth path even higher,” S&P Global Ratings Director YeeFarn Phua said.India, Phua added, remains one of the strongest and best-performing economies globally. “Over the past 3-4 years, India has been an outperformer in growth compared to regional peers,” he said at a webinar on India’s rating upgrade.On the specific impact of higher tariffs, S&P Asia Pacific Economist Vishrut Rana said India’s economy is largely sheltered due to its domestic orientation. “India's economy is relatively less trade-oriented, with external demand contributing only 15 per cent of the overall economy and 85 per cent driven by domestic factors.

So it is a very heavily domestically oriented economy. That is one element of shelter,” Rana said.He noted that mitigating factors, such as exemptions for some sectors and limited exposure to the US, would cushion the blow. “It is a complicated environment. There are several mitigating factors which are likely to cushion the overall impact on the economy. Still, we could see some short-term confidence effects on the economy.

Medium term, the structural factors — favourable growth path, infrastructure and continued favourable business environment — will determine the growth path,” Rana said.The US has already imposed a 25 per cent tariff on Indian goods effective August 7, with an additional 25 per cent duty scheduled from August 27, taking the total to 50 per cent.Phua stressed that India is staying on course with reforms despite external disruptions.

“These external developments (like high tariffs) can sometimes create some noise but by and large, this government is staying on course and trying to improve the standard of living for its people,” he said.Asked about the tariff impact on growth, Phua underlined that S&P takes a long-term approach. “Exposure of India to the US in terms of exports is just 1 pc of GDP. So, even though tariffs remain high, we don’t think it will have an overall impact on India’s long-term growth prospects. Short term, it might have some marginal hit to growth, over a longer term, we believe India's growth story remains sound,” he added.