India's Economy Amidst the Tariff Wave from the United States

Counter-tariffs Applied to India and the Country’s Actions

On April 2, 2025, the administration of U.S. President Donald Trump announced a new tariff policy, imposing a basic tariff of 10% on all imports and a higher counter-tariff of up to 26% on approximately 60 countries with large trade surpluses with the U.S., including India.

The 26% tariff severely affects India's key export industries, such as automobile parts, chemicals, steel, shrimp, and gemstones. Conversely, pharmaceuticals, semiconductors, and copper are exempt from the tariffs, providing some relief. Notably, the seafood industry, which reached USD 7.3 billion in 2024, has been significantly impacted, especially in the shrimp sector, despite the 26% tariff being postponed until July.

Instead of retaliating with counter-tariffs, India chose a diplomatic approach, advocating for a Bilateral Trade Agreement (BTA) following Prime Minister Modi's visit to the U.S. The country also made concessions such as reducing tariffs on whiskey, Harley-Davidson motorcycles, and removing the “Google tax.” The Indian government hopes that these positive moves will encourage the U.S. to reconsider delaying or exempting tariffs based on the "remedial action" clause in President Trump's tariff decree.

However, according to a document submitted to the World Trade Organization (WTO), the Indian government stated that it is considering increasing tariffs on certain U.S. imports in response to U.S. tariffs on imported aluminum and steel.

Current India's Economy Through Macroeconomic Indicators

1. GDP

ndia’s total GDP was valued at USD 3.567 trillion in 2023, accounting for 3.38% of the global economy. In 2024, India's GDP reached USD 3.68 trillion, about eight times that of Vietnam’s GDP.

India's GDP growth rate in recent years:

• 2022: 9,7%

• 2023: 7,6%

• 2024: 9,2%

Source: PIB Delhi

2. Inflation

India's annual inflation rate fell to 3.34% in March 2025, the lowest in over five years, from 3.61% in February.

Source: PIB Delhi

This decrease has brought inflation well below the Reserve Bank of India’s mid-term target of 4%.

Food inflation, which accounts for nearly half of India’s consumer goods basket, dropped to a nearly four-year low (2.69% compared to 3.75% in February) due to lower prices for eggs, spices, vegetables, and pulses.

This was enough to offset the rise in fuel and electricity prices (1.48%) and faster inflation in the housing sector (3.03%).

3. Interest Rates

The Reserve Bank of India (RBI) reduced the key repo rate by 25 basis points to 6% in its April meeting, marking two consecutive cuts of the same magnitude and in line with market expectations. This latest adjustment brought borrowing costs to their lowest level since November 2022, due to cooling inflation, slower economic growth, and increasing global trade tensions.

4. Exports and Imports

In March 2025, India’s exports reached USD 41.97 billion, while imports totaled USD 63.51 billion, resulting in a trade deficit of approximately USD 21.54 billion.

In the fiscal year 2024-2025, the trade deficit with China reached a record USD 99.2 billion, due to a sharp rise in imports of electronics and batteries.

5. Exchange Rate

The exchange rate between the Indian Rupee (INR) and the U.S. Dollar (USD) was approximately 85.52 INR/USD in April 2025.

The Rupee has appreciated by over 1% in the past three trading sessions, thanks to foreign investment inflows and the weakening of the U.S. Dollar.

6. India's Management and Stimulus Policies for Development

In the 2025-26 Federal Budget, the Indian government allocated INR 11.21 lakh crore (approximately USD 135 billion) to the infrastructure sector to drive economic development and achieve the "Viksit Bharat @ 2047" goal.

The government also launched the second phase of the Asset Monetization Plan for the 2025-2030 period, aiming to raise INR 10 lakh crore for investment in new infrastructure projects.

The establishment of the National Bank for Infrastructure Financing and Development (NaBFID) aims to address financial challenges for large infrastructure projects.

India's Development Drivers and the Impact of External Forces

1. Development Drivers

Young and Large Workforce

In 2023, India officially became the most populous country in the world, with a population exceeding 1.4 billion people, 65% of which are under the age of 35. This provides India with a large and youthful workforce, which boosts labor, production, and consumption. Additionally, India has a significant diaspora living in many countries, contributing substantial remittances to the country’s budget.

Geographical Location 

India’s strategic location in South Asia, bordering major countries such as China, Pakistan, Bangladesh, and Nepal, provides several advantages:

• Trade Gateway: India acts as a trade hub between East Asia, the Middle East, and Europe, connecting key regions and offering low transportation costs, which benefits exports in sectors like oil, coal, agricultural products, and textiles.

• Maritime Economy and Tourism Potential: With its long coastline, India has opportunities to develop sectors like international trade, marine tourism, fisheries, marine energy, and logistics. Moreover, its rich cultural heritage and diverse landscapes attract significant numbers of international tourists.

• National Security: India’s proximity to large nations allows it to maintain strategic influence in the region.

Natural Resources

India is rich in natural resources:

• Minerals: India is one of the world’s largest producers of coal and has significant reserves of iron ore, bauxite, and limestone.

• Agriculture: India is a major producer of rice, wheat, tea, spices, and pulses.

• Renewable Energy: India is heavily investing in solar and wind energy, aiming for a renewable energy capacity of 500 GW by 2030.

These resources not only meet domestic demand but also serve as vital exports, contributing to economic growth and job creation.

2. Impact of External Forces

Increased Export Costs and Reduced Competitiveness

The U.S. tariff policy under President Trump significantly impacted India’s export sectors. While India has a large textile and steel industry, these sectors are directly affected by tariffs. Products like electronics, textiles, and steel from India face higher tariffs, reducing their competitiveness on global markets.

For example, India's steel exports have been hit by U.S. tariffs, leading to increased production costs and lower profits for businesses. The shrimp sector has also faced challenges, with tariffs on seafood, though some tariffs were postponed by President Trump.

Impact on Global Supply Chains

India plays a key role in global supply chains, especially in pharmaceuticals and technology. The rise of trade barriers like tariffs or technical regulations can disrupt these supply chains, slowing industrial and trade growth, particularly as India seeks to attract multinational corporations shifting production from China. With higher tariffs, import costs for raw materials increase, directly impacting product prices and competitiveness in global markets.

Leverage for Accelerating Domestic Production

Alongside the negative impacts, tariffs also present an opportunity for India to strengthen domestic manufacturing. Through its "Atmanirbhar Bharat" (Self-Reliant India) strategy, the government is encouraging domestic production over reliance on imports. The government provides financial incentives to boost domestic manufacturing, reducing dependence on foreign raw materials. For instance, domestic electronics production has grown significantly, from INR 1.90 lakh crore in 2014-15 to INR 9.52 lakh crore in 2023-24, with a target of USD 300 billion by 2026.

Impact on Bilateral Trade Relations

Tariffs also affect India’s trade balance. For example, the trade deficit with China reached USD 99.2 billion in 2024. If China continues with its policy of exporting cheap goods or engaging in dumping, India may impose anti-dumping tariffs, leading to bilateral trade tensions.