India’s economic landscape faces new challenges as the United States implements tariffs on key Indian exports, citing concerns over India’s stance on Russian oil purchases. However, as India confronts this external pressure, its economic fundamentals and strategic policies offer a robust defence. Chief Economic Advisor (CEA) V.Anantha Nageswaran’s optimistic projection that the effects of U.S. tariffs will subside in one to two quarters underscores India’s ability to weather such storms with minimal long-term consequences.
U.S. Tariffs: Immediate Impacts and Long-term Resilience
The tariffs, which include a 25% levy on Indian goods with another 25% set to take effect in late August, have
undoubtedly raised alarms among Indian exporters.2 These measures are a direct consequence of India’s
continued purchase of oil from Russia, which has strained relations between the two countries. Despite the
immediate fallout, Nageswaran’s outlook is grounded in India’s strategic positioning in the global economic
order. His assertion that the tariffs’ impact will ease in a matter of quarters highlights India’s diversified
economy, one that is less reliant on external markets than many other emerging economies.
The Indian government remains in active negotiations with the U.S., with a scheduled U.S. delegation visit on
August 25 to explore a more favourable trade framework for both sides.3 This diplomatic engagement could
provide a pathway to mitigating some of the damage caused by the tariffs, presenting an opportunity for both
countries to recalibrate their economic relationship.
India’s Economic Growth Trajectory: Resilient and Steady
Amid global trade tensions, India’s growth trajectory remains strong. The Reserve Bank of India (RBI) has
maintained its growth forecast for FY26 at 6.5%, signalling confidence in India’s ability to maintain steady
economic growth despite external challenges.4 The positive growth forecast is backed by strong fiscal discipline, a booming digital economy, and targeted policy reforms, which have spurred investment in manufacturing and infrastructure.
India’s economic policies, led by Prime Minister Narendra Modi’s government, have fostered an environment
that encourages innovation and self-reliance. The government’s focus on initiatives such as Make in India,
Digital India, and Atmanirbhar Bharat (self-reliant India) continues to build a strong domestic base. These
efforts have helped diversify India’s economic portfolio, making the country more resilient to external shocks.
The country’s economic fundamentals, including a burgeoning consumer market and rising manufacturing
activity, have contributed to India’s continued growth even as other nations grapple with the economic
repercussions of the COVID-19 pandemic and geopolitical tensions. According to Morgan Stanley, India is
poised to emerge as one of the world’s most sought-after consumer markets, with its structural changes fueling long-term economic potential
Policy Reforms and Strategic Resilience
India’s ability to withstand external economic shocks is a result of its strategic policy reforms. India has pursued a path of fiscal consolidation and policy stability. The government’s focus on expanding domestic
manufacturing and enhancing the country’s infrastructure has created a foundation for long-term growth.
The Indian economy is benefiting from greater domestic demand, which now constitutes a larger share of GDP than ever before. The ongoing efforts to strengthen India’s manufacturing base, coupled with policy reforms aimed at boosting the ease of doing business, continue to fortify the country’s economic standing.
The recent upward revision of India’s sovereign credit rating by S&P Global to ‘BBB’ highlights the effectiveness of India’s fiscal policies.6 This rating upgrade reflects confidence in India’s economic management, especially its ability to manage the fiscal deficit and sustain growth despite external pressures.
Navigating Challenges with Confidence
In conclusion, while the U.S. tariffs present short-term challenges, India’s economic resilience and strategic
policy framework position the country well to navigate these pressures effectively. India’s proactive engagement with global stakeholders, combined with its internal economic reforms, ensures that the country will not only survive but thrive in an increasingly complex global economic environment.
The diplomatic efforts to negotiate a favourable trade agreement with the U.S., coupled with India’s growing
internal markets, will allow the country to remain a strong player in the global economy. As India continues to
implement its economic vision under the Modi government, the country’s growth trajectory remains intact,
positioning India as a resilient and strategic force on the world stage. The U.S. tariffs, while a temporary setback, will ultimately prove inconsequential in light of India’s broader economic strategy.
