India Faces U.S. Tariff Turbulence but Stays Resilient

India’s export sector is grappling with one of its biggest shocks in recent years after the United States announced sweeping tariffs that will hit key industries. The Trump administration’s decision to impose a cumulative 50% tariff—split into two phases earlier this year—was partly driven by India’s continued imports of Russian oil. The blow is particularly heavy for labor-intensive sectors such as textiles, gems and jewelry, leather goods, rice, and auto parts. Economists warn that some industries could see export declines of up to 70%, with overall shipments to the U.S. projected to fall by more than 40%. This downturn could shave nearly a full percentage point off India’s GDP, signaling the seriousness of the external challenge.

Mark Mobius asserted that India's rapid economic growth, stable development and substantial domestic market make it attractive. (News18 Hindi) | News18

Adapting Through Diversification and Reform

Despite the tariff shock, India is not standing still. Exporters are already pivoting towards new markets, with Russia, Brazil, and the Netherlands emerging as priority destinations, especially for pharmaceuticals. The government has launched an accelerated Export Promotion Mission, aimed at helping companies restructure supply chains and withstand short-term liquidity constraints. Discussions are also underway on temporary relief measures such as GST cuts and cheaper credit facilities for exporters. While the short-term outlook appears uncertain, policymakers emphasize that the structural foundations of India’s economy remain intact and capable of absorbing such shocks.

Domestic Demand as the Backbone of Growth

What sets India apart from many emerging economies is its vast domestic market. Even as exports face hurdles, consumption within the country continues to power growth. Urban and rural demand has remained steady, supported by government investment and reform initiatives. Data for the first quarter of FY26 shows GDP expanding at around 7.8%, a sign that the economy is anchored more in internal demand than in external trade. Former Reserve Bank of India deputy governor Michael Patra underscored this point, noting that India’s growth is increasingly sustained by domestic resources rather than foreign inflows. This resilience is further strengthened by the rapid rise of India’s digital economy, where innovations such as expanded UPI services are driving financial inclusion and supporting consumer activity.

Investor Confidence Amid Uncertainty

While global investors are monitoring tariff-driven risks, confidence in India’s long-term prospects remains high. Veteran emerging-market investor Mark Mobius has maintained roughly 20% of his portfolio in India, describing the country’s entrepreneurial energy, reform momentum, and growing software and pharmaceutical exports as strong positives. Mobius acknowledges that tariffs will create friction, but he believes the impact will be temporary and limited, with GDP growth expected to moderate only slightly from 6% to about 5.5%. At the same time, he has advised caution against passive index investing in such a volatile environment, arguing that active strategies are better suited to navigating geopolitical risks.

The Geopolitical Dimension

The tariff escalation has also deepened diplomatic tensions between New Delhi and Washington. U.S. officials argue that India’s purchase of Russian oil undermines Western sanctions, while Indian leaders counter that their energy needs and strategic autonomy cannot be compromised. Prime Minister Narendra Modi has responded by highlighting India’s economic resilience, emphasizing that the nation will continue to grow despite external pressures. At the same time, India has intensified its engagement with BRICS partners, signaling a shift towards more diversified alliances in a rapidly changing global order. This recalibration reflects not just a response to U.S. actions but also a broader strategy to strengthen India’s global economic position.

The MGMM Outlook

India’s export sector is currently navigating significant challenges following the imposition of U.S. tariffs, which target key industries such as textiles, gems, jewelry, leather goods, rice, and auto parts. While some sectors may experience steep declines in shipments, India’s economic framework remains resilient. Exporters are proactively exploring new markets including Russia, Brazil, and the Netherlands, particularly in pharmaceuticals, while government initiatives are providing support through supply chain restructuring, credit facilities, and tax relief. These efforts reflect India’s capacity to adapt quickly, ensuring that short-term shocks do not derail long-term growth prospects.

Beyond exports, India’s domestic demand continues to underpin economic stability. Urban and rural consumption, bolstered by government reforms and infrastructure investment, sustains growth even amid global uncertainties. The rapid expansion of India’s digital economy, including innovations like UPI services, reinforces financial inclusion and consumer activity. Investor confidence remains strong, with market veterans recognizing India’s entrepreneurial energy and diversified export potential. At the same time, India is recalibrating its global alliances, engaging with BRICS partners to strengthen strategic autonomy. These measures collectively highlight India’s ability to maintain steady growth and assert its economic sovereignty despite international pressures.

(Sources: Business Today, News18, Firstpost)