True Independence Day: Resisting Trump’s Tariff Tantrums and Keeping India’s Growth Engine Turbocharged
On its 79th Independence Day, India affirms that true economic freedom lies in shielding growth from protectionist shocks and confidently charting its own path to prosperity.
Author credentials:
K.B.S. Sidhu, IAS (Retd.), former Special Chief Secretary, Punjab, holds an M.A. in Economics from the University of Manchester, U.K., and writes at the intersection of Trump’s tariff cliffs, geopolitics, and the resilience of the Indian economy.
India and the U.S. Tariff Speedbreakers: Why Growth Still Looks Resilient
Trump’s tariffs have triggered their share of doubting Thomases and Cassandras forecasting gloom, and even some knee-jerk reactions in the domestic market. Yet the return of aggressive U.S. tariff measures has once again raised questions in global markets: will a new protectionist wall dent India’s growth prospects, or will the world’s fourth-largest economy power through? The short answer is that India stands in a position of unusual resilience. The longer answer—built on solid economic fundamentals, sectoral realities, policy choices, robust domestic demand, and a growing culture of innovation—suggests growth may bend, but it will not break.
Low Direct Exposure to U.S. Tariffs
One of India’s key strengths is its relatively low dependence on exports to the United States. Exports of goods and services to the U.S. make up only about 2% of India’s GDP—roughly a third of the Asia-Pacific average. This sharply limits the direct first-round effect of higher U.S. duties.
India’s economy is also less “trade-heavy” than many peers, and domestic demand is an important pillar of its economic strength. Total exports hover near 21% of GDP, and overall trade openness (exports plus imports) is around 45% of GDP—significantly below levels seen in classic export-oriented economies. This does not make India closed; rather, it reflects a diversified growth model in which domestic consumption and investment play the dominant role. This resilience is further underpinned by India’s over 1.4 billion people, a burgeoning and aspirational middle class that fuels domestic markets, and an influential global diaspora that strengthens business linkages, remittances, and political goodwill abroad.
S&P’s View: Tariffs Not a Growth-Derailing Threat
S&P Global Ratings has been clear: the latest round of U.S. tariffs is not expected to derail India’s growth trajectory or alter its sovereign rating outlook. In fact, in mid-August, S&P upgraded India’s sovereign rating to ‘BBB’ from ‘BBB-’—its first such upgrade in nearly two decades—citing resilience, fiscal consolidation, and strong fundamentals.
S&P’s growth forecasts have shifted slightly through the year—6.5% in March, 6.3% in May, and back to 6.5% in late June—but the range remains robust. The IMF’s July forecast of 6.4% for both 2025 and 2026 sits just below S&P’s number, underlining the broad consensus that India will remain the fastest-growing major economy.
The Channels of Impact
Even with low direct exposure, tariffs can hit through multiple channels:
Sectoral pinch points: Certain export sectors—like textiles, gems and jewellery, and select machinery—face margin pressure from higher duties. The U.S. has already imposed tariffs of around 25% on many Indian imports, with talk of rates “up to 50%” on certain categories. These are more damaging to price-sensitive products than to India’s services exports, such as IT and business services, which are typically sold on long-term contracts and less exposed to tariff schedules.
Global demand effects: Higher U.S. tariffs can dampen global trade flows, disrupt supply chains, and raise costs for businesses worldwide. This can indirectly soften demand for Indian exports in third markets.
Financial markets and currency: Tariff shocks can provoke risk-off sentiment, putting pressure on the rupee. However, India’s healthy foreign exchange reserves and the Reserve Bank’s policy credibility provide strong buffers.
Energy and geopolitics: Trade tensions can spill into broader geopolitical arenas. The U.S. has linked tariff measures to India’s dealings with Russia, particularly in the energy sphere—a space where India has shown remarkable adaptability.
Why India’s Growth Engine is Still Humming
Unlike the East Asian growth stories of the past, India’s economic momentum is not primarily export-led. Its growth model is rooted in strong domestic demand, both in consumption and investment, and a services sector that continues to climb the value chain.
Recent data shows urban consumption holding firm, capital expenditure—both public and private—rising steadily, and inflationary pressures easing. These are precisely the conditions that allow India to weather external trade shocks better than many of its peers. The country’s sheer size and the spending power of its middle class mean that even significant external shocks tend to be absorbed without derailing the overall trajectory.
Pockets of Pain: Industries in the Line of Fire
The impact of any steep, across-the-board “cliff tariffs” would not be evenly spread across the economy. Pockets of India’s export ecosystem—many concentrated in Gujarat—would be disproportionately hit. Pharmaceutical manufacturers in Ahmedabad and Vadodara, which have built substantial U.S. market share in generics, could face sharper compliance and cost hurdles. Surat’s diamond polishing and jewellery export industry, a global leader in its category, would be squeezed by price-sensitive buyers in America. Textile exporters from Gujarat’s industrial belts could also take a hit, given their dependence on competitive pricing.
For Prime Minister Modi, whose political base has deep roots in Gujarat’s entrepreneurial sectors, the localised economic discomfort could be politically awkward. Yet at the macro level, these shocks would register as only a small blip on the radar of India’s broader growth trajectory, cushioned by the scale, diversity, and domestic dynamism of the national economy.
Caveats: The Risks to Watch
While the base case remains favourable, there are three caution flags:
Tariff escalation risk: If the U.S. moves from a selective approach to a blanket near-50% tariff wall, and if India retaliates or global trade tensions spread, the hit to growth could be more significant.
MSME pressure: Micro, small, and medium enterprises in export-heavy clusters could see profitability squeezed in the short term. Targeted working capital support and faster tax refunds could ease the transition.
Imported inflation: Higher tariffs globally can push up the cost of imported machinery, components, and logistics, feeding into domestic inflation.
Policy Guardrails: Winning Despite Tariffs
India’s best defence is to keep building its structural strengths:
Diversify export markets to reduce single-market dependence.
Move up the value chain in both manufacturing and services, making exports less price-sensitive.
Streamline domestic frictions so that producing and exporting from India remains cost-competitive even with higher external tariffs.
Deploy sector-specific diplomacy to secure carve-outs in areas where U.S. consumers and businesses benefit from Indian efficiency—like pharmaceuticals, renewables, and IT services.
A New Geopolitical Twist: Treasury Secretary’s Warning
Adding a fresh wrinkle, the U.S. Treasury Secretary recently remarked that if upcoming talks in Alaska between President Trump and President Putin fail to produce a breakthrough, Washington could impose higher tariffs on India. This linkage between U.S.–Russia negotiations and India’s trade treatment underscores how geopolitics and economics can intertwine in unpredictable ways.
In Summary: Noise, Not a Knockout
India is not immune to global trade tensions, but its economic structure, domestic demand base, and prudent policy buffers give it an advantage few emerging markets can match. The direct trade link to the U.S. is small, the sovereign upgrade signals international confidence, and growth in the 6.4–6.5% range remains a realistic prospect.
As India prepares to celebrate its 79th Independence Day at the historic Red Fort in New Delhi, the dedicated and dynamic leadership steering the nation’s course will be reflected not only in Prime Minister Modi’s address to the nation but also in the symbolic choice of the turban he sports—often a visual nod to tradition, pride, and resolve. Even as we wait for the Trump–Putin talks to unfold in Alaska, USA, in less than 24 hours—talks which President Trump himself has said have only a 25% chance of success—the possibility of higher tariffs on India looms in the background.
With over 1.4 billion citizens, a rapidly expanding and aspirational middle class, a far-reaching diaspora, and the economic weight of the world’s fourth-largest economy, India is better placed than most to ride out short-term turbulence. Tariffs may be loud in the headlines, but for India, they are more likely to be a headwind than a hurricane. The real test will be in turning external pressures into catalysts for internal reform—ensuring that when global trade weather turns stormy, India’s growth engine stays not just intact, but turbocharged.