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Trumps tariff threat vs. Indias economic will: Why 50% duties wont derail our growth

by Subhojit Roy | @twfindia 08 Aug 2025, 07:24 am

U.S. President Donald Trump reignited a global trade storm by announcing a 50% tariff on Indian imports on August 6, 2025.

Framed as a retaliation for India's continued imports of Russian oil, this policy, if implemented, would mark the sharpest rise in trade duties on a major U.S. partner in recent history. But India, under the firm leadership of Prime Minister Narendra Modi, is neither panicking nor compromising.

Instead, the world’s fifth-largest economy has stood tall.

Modi’s firm rebuttal: “India Is Ready”

Speaking at the MS Swaminathan Centenary Conference, Prime Minister Narendra Modi responded to Trump’s threat with calm defiance:

“India will never compromise on the interests of farmers, fishermen, and dairy farmers. I know personally I will have to pay a heavy price — but I am ready for it. India is ready.”

This statement was not just symbolic. It was strategic — signalling that India will not be coerced by economic threats, and national interest will remain supreme.

Decoding the tariff impact

While a 50% tariff sounds punitive, it’s important to understand the actual exposure:

• The U.S. is India’s largest single-country export destination but only accounts for ~18% of India’s total goods exports.

• India exported $78.5 billion worth of goods to the U.S. in FY2024, against total exports of over $437 billion.

• Services exports, particularly in IT, BPO, and fintech, brought in $340 billion — a sector largely unaffected by tariff hikes.

Conclusion? The tariff, while headline-grabbing, does not pose an existential threat to India's economy.

India’s economic resilience: Numbers don’t lie

• GDP Growth: Projected at 6.5–6.8% for FY2025–26, the highest among major economies.

• Foreign Exchange Reserves: Over $650 billion — providing a strong buffer against volatility.

• Inflation: Under control, with CPI hovering around 4.5% — thanks to proactive monetary policy.

• Debt-to-GDP Ratio: Lower than many developed nations, including the U.S. and China.

• FDI Confidence: India remains in the top 3 FDI destinations globally, with inflows exceeding $83 billion last year.

Diversification: India’s shield against tariff shocks

India has, over the past decade, diversified both its export markets and strategic partnerships:

• Middle East: UAE-India CEPA has boosted non-oil trade by 30% since 2023.

• Africa: Bilateral trade reached $90 billion, with growing exports in pharma, tech, and agriculture.

• Southeast Asia: Trade with ASEAN nations stood at $130 billion in FY24.

• Australia and EU: New FTAs under negotiation or already signed.

This South-South and Eastward orientation ensures India is not at the mercy of any one market.

The service sector advantage

It’s critical to remember that tariffs impact goods — not services. And India’s true economic engine is its services sector, which contributes over 54% to national GDP.

India remains the world’s digital talent hub:

• Over 5 million employed in IT-BPM.

• Software exports to the U.S. continue to grow annually at 8–10%.

• Global demand for Indian fintech, AI, and healthtech services is booming.

This “soft export power” makes India less vulnerable to goods-only trade disruptions.

Modi’s stand: Political bravery or economic necessity? Both.

By taking a bold stand against Trump’s tariff threats, PM Modi isn’t just safeguarding political optics — he’s backing a development model rooted in self-reliance, social welfare, and export competitiveness.

• Protecting farmers and fishermen means upholding food security and rural livelihoods.

• Prioritising local manufacturing aligns with the ‘Make in India’ Aatmanirbhar Bharat visions.

• Refusing to succumb to U.S. pressure signals India’s sovereign autonomy on global issues — including the right to energy security through oil imports.

Final Word: We’ve faced worse. We will rise higher.

India has weathered the 1991 balance of payments crisis, the 2008 global meltdown, demonetisation, a pandemic, and oil shocks. A 50% tariff, no matter how sensational it may sound, will not derail the aspirations of 1.4 billion people.

Instead, it may prove to be a catalyst — accelerating India’s pivot toward new partners, enhancing domestic capacity, and asserting its place in a multipolar global economy.

As Prime Minister Modi said, "India is ready."

And this time, we’re ready not just to survive — but to lead.