India’s economic growth remains robust despite rising US tariffs under the Trump administration. The International Monetary Fund (IMF) recently raised India’s growth forecast to 6.4 per cent for 2025. Domestic consumption drives this expansion, cushioning the impact of external trade tensions. India continues to uphold its trade principles and refuses to yield to unreasonable US demands. This stance shapes the current global trade environment and India’s strategic response.
India’s Economic Growth and Domestic Consumption
India’s growth is primarily fuelled by domestic consumption, which accounts for over 70 per cent of GDP. Inflation is controlled, and a favourable monsoon supports agricultural output. This internal demand limits the negative impact of US tariffs on exports. The IMF estimates a maximum 0.3 percentage point reduction in GDP growth due to tariffs, indicating resilience.
Trade Patterns and Export Composition
India exported goods worth $438 billion in 2024-25, with imports at $721 billion. The US remains the largest export market, accounting for 20 per cent of exports. Key export sectors include engineering goods, textiles, pharmaceuticals, gems and jewellery, and electronics. These sectors employ millions, especially in labour-intensive industries. Despite tariffs, India’s export basket remains diversified across products and markets.
Impact of US Tariffs on Indian Exports
The US has imposed tariffs ranging from 25 to 50 per cent on various Indian goods, notably textiles, apparel, gems, jewellery, steel, aluminium, and auto parts. These tariffs threaten to reduce exports by $20-$30 billion short-term. Competitors like Bangladesh and Vietnam enjoy lower tariffs, risking displacement of Indian products in the US market. However, India’s exports to these nations may offset some losses through regional supply chains.
Trade Agreements and Market Diversification
India has FTAs with countries including the UK, EFTA, ASEAN, and SAFTA. Negotiations continue with the EU and GCC. These agreements aim to diversify export markets beyond the US. Expansion into East Africa, the Middle East, Southeast Asia, and Latin America is a priority. Trade agreements will help mitigate tariff pressures by opening new avenues for Indian goods.
Service Sector Strength
India’s service exports reached $383 billion in FY2025, with a surplus of $189 billion over imports. IT services dominate, representing 70 per cent of service exports, much of which is destined for the US. US tariffs currently target manufacturing only, sparing the critical IT sector. This protects a vital revenue source and employment base.
Strategic Challenges and Reform Imperatives
US trade policy under Trump aims to reshape global supply chains and boost American manufacturing. India must respond with reforms to enhance value addition, technology adoption, and export competitiveness. Investing in precision engineering, green technologies, and modernising textiles is essential. Improving logistics, providing incentives, and pursuing new markets are key strategies. Reducing dependence on the US and strengthening self-reliance in critical sectors is vital.
Geopolitical and Defence Considerations
India views the US as an unreliable defence partner due to shifting alliances and commercial interests. There is a call to decouple from US defence supplies and maintain strategic autonomy. This stance reflects broader concerns over geopolitical trust and national security.
Lessons from Past Tariff Episodes
India’s experience with earlier US tariffs on steel and aluminium shows the importance of market diversification and value addition. While textile exports benefited initially from US-China trade tensions, India lost ground to competitors due to higher costs and logistics challenges. These lessons underline the need for urgent structural reforms.
Questions for UPSC:
- Critically discuss the impact of international trade tariffs on developing economies with reference to India’s experience under US tariff policies.
- Examine the role of domestic consumption in sustaining economic growth amidst global trade tensions. How does this apply to India?
- Analyse the strategic importance of trade agreements in diversifying export markets for emerging economies. Point out their limitations and advantages.
- Estimate the geopolitical implications of defence supply dependencies in international relations and how they affect national security strategies.
