India will remain the fastest growing economy among the advanced and emerging G-20 countries and the large size of its domestic market makes the country less vulnerable to potential shocks from US tariff policy.

The report highlights that India has a low external vulnerability indicator due to its relatively modest external debt to GDP ratio of 19 per cent and low export dependence on the US market at 2 per cent of GDP.

In its report on emerging markets, Moody's stated that India's GDP growth, projected at 6.5 per cent for 2025-26, will remain the highest of the advanced and emerging G-20 countries on the back of tax cuts and continued monetary policy easing by the Reserve Bank as inflation has come down.

The report projects India’s inflation to average 4.5 per cent in the current financial year, down from 4.9 per cent in the previous fiscal year. This is expected to pave the way for a soft money policy, with lower interest rates and more liquidity in the economy, to spur economic growth.

"Large, diversified and domestically driven emerging market economies such as India and Brazil are more equipped than smaller peers to continue attracting capital and withstand any cross-border outflows. These two economies also have deep domestic capital markets and low external vulnerability indicators," Moody's said.

By contrast, smaller and more open economies are more exposed to fluctuations in investor sentiment and currency volatility, as are economies with a large share of debt denominated in foreign currency, such as Argentina and Colombia, Moody's explained.

The report also states that emerging market growth will slow in the aggregate in 2025-26 but remain solid, with wide variations among countries. Growth will remain highest in Asia-Pacific, but the region's integration in global trade means it is most exposed to US tariffs and their potential to slow down growth, the report added.