10 reasons India sees Trump tariff crisis as an opportunity and a time to reboot

In India, there is a view that US President Donald Trump’s 50 per cent tariffs are more of an opportunity for a reboot than a setback.

Such a view is backed by the Indian economy’s fundamentals and historical trends. Independence analyses have also supported such a view.

1. Strong fundamentals

India’s economic fundamentals remain robust that allow India to better handle 50 per cent American tariffs.

In recent weeks, independent agencies have also attested to these strong fundamentals — S&P Global has upgraded India’s sovereign rating to ‘BBB’ from ‘BBB-’ and EY in its Economy Watch Report for August said that India’s fundamentals remain strong, such as high savings and investment rates, favourable demographics, and a sustainable fiscal position.

In fact, the EY report said that Trump’s tariffs may affect nearly 0.9 per cent of India’s GDP but their impact on GDP growth can be contained to just 0.1 percentage point with appropriate countermeasures like export diversification, raising domestic demand, and advancing trade partnerships with other countries and blocs.

The report said that India is projected to be world’s second-largest economy by 2038 with a GDP of $34.2 trillion in purchasing power parity (GDP-PPP) terms.

2. Market size with high growth potential

India’s large domestic market of 1.4 billion is a cushion against disruption for tariffs.

The large market size means that it is too big ignore for any trading partner for a long time. At the same time, the big market size allows measures like GST cuts to spur consumption-led growth to make up for any short-term losses.

3. History highlights resilience to crises

India has overcome bigger crises in the past, such as sanctions after the nuclear tests of 1998, the global financial crisis of 2008, and the Covid-19 pandemic’s disruptions. This history of resilience fuels confidence to face the current trade challenges without panic.

While India’s economy contracted by 5.8 per cent in 2020 from pandemic-induced shutdowns, it rebounded with 9.1 per cent growth in 2021 and continued the growth the next (6.8 per cent). This was much stronger than other big economies like the US or Japanese economies.

4. Opportunity to push reforms

Trump’s tariffs have presented an opportunity for India to deepen structural reforms aimed at improving the ease of doing business, regulatory environment, quality standards, and innovation ecosystems, and push India towards a globally competitive business climate.

In the Independence Day speech, Prime Minister Narendra Modi promised “next generation GST reforms” and announced the creation of a taskforce to evaluate all current laws, rules, and procedures related to economic activities to reduce compliance costs for startups, micro, small, and medium enterprises (MSMEs), and entrepreneurs, provide freedom from fear of arbitrary legal actions, and ensure laws are streamlined for ease of doing business.

“The government will bring Next Generation GST reforms, which will bring down tax burden on the common man. It will be a Diwali gift for you,” Modi further said.

The government has already announced GST reforms. The government is also looking to diversify India’s export destinations and reach trade deals with more countries and blocs like the South American nations of Peru and Chile and European Union (EU) and Eurasian Economic Union (EEU).

5. Self-reliance

Trump’s tariffs have also made India double down on the vision of ‘Atmanirbhar Bharat’ (self-reliant India). India is leveraging the moment to promote its self-reliance initiative, supporting domestic manufacturing and exports, exemplified by new ventures such as Suzuki’s EV plant targeting exports to 100 countries .

In recent years, the government has floated PLI schemes to boost manufacturing of electronics and other goods in the country.

PM Modi has encouraged Indians to buy domestically made products.

‘Swadeshi’ should be the “mantra” and that irrespective of who puts in the investment, the production must be Indian, the prime minister said.

He said, “My definition of swadeshi is very simple: it doesn’t matter whose money is invested, whether it is dollars, pounds, whether the currency is black or white, it doesn’t matter to me. What matters is that in production, the sweat belongs to my countrymen. The money may be someone else’s, but the sweat is ours.

“By 2047, we will build such a Bharat that your future generations will take pride in your sacrifices, will take pride in your contributions. In that way, Maruti Suzuki is also a swadeshi company. The world will drive electric vehicles that are made in India.”

This was also a clear indication that India was considering expanding foreign investment opportunities in India beyond traditional investment sources.

6. Diversification of trade partners and markets

To make up for losses of exports to the United Stats and to also expand India’s foreign trade in general, India is exploring more and more trading partners.

India has signed trade deals with the United Kingdom and the European Free Trade Association (EFTA) comprising Switzerland, Norway, Iceland, and Liechtenstein. India is also negotiating trade deals with the European Union (EU) and the Eurasian Economic Union (EEU). India is also capitalising on its historical partnership with Russia and recent improvement of ties with China to explore export opportunities and attract investments.

As Firstpost has previously reported, there are indications that India could revise the ‘PN3’ notification that essentially barred all Chinese investments. The revision, if it takes place, would be aimed to bringing in foreign investment to promote industrial activities in a mutually-beneficial arrangement.

7. Pragmatism, not retaliation

Instead of retaliation, India has sought to handle the situation with pragmatism. India has kept channels of communication open and has sought to reach the middle ground with the Trump administration.

At the same time, India has that there are certain red lines that it would respect at all costs, such as the exclusion of agriculture and dairy from any trade deal as a protective measure.

8. Support to affected industries

The government is considering floating a financial support package for sectors worst hit from Trump’s tariffs, such as shrimp producers.

As Firstpost has previously reported, the support package under consideration is part of a broader set of proposals that includes incentives like new subsidies, easing access to credit, and easing the regulatory and compliance scenario to minimise expenses and promote diversified exports.

India can use savings from the purchase of discounted Russian oil to support exporters affected by US tariffs, which will give leverage to India regarding both Russia and United States, Prof. Ram Singh, a scholar of international trade and business at the Indian Institute of Foreign Trade (IIFT), previously told Firstpost.

9. Domestic demand generation

With actions like GST rate cuts, the government is aiming to cushion the blow of loss of exports to the United States. The GST cuts-induced consumption boost could halve the loss to the GDP growth .

After Trump announced 50 per cent tariffs, analysts said that India could lose up to 1 per cent GDP growth .

With GST cuts, the spending surge as a result of increasing affordability and encouraging formalisation of economy should be around Rs 1.4 lakh crore at 0.4 per cent of the GDP, Sameer Narang, the Head of Economics Research at ICICI bank, told NDTV Profit.

This means that the GST-induced spending surge could nearly halve the impact of tariffs-induced losses on GDP.

10. Increasing competitiveness and innovation

Learning from China, India has decided to ramp up improving its competitiveness and innovation compared to global partners. There is a view that says that Trump’s tariff war has fuelled India’s resolve to build advanced manufacturing capabilities, improve quality of products and services, and ramp up R&D investments to compete globally.