India’s robust economic fundamentals position it well to withstand the renewed tariff war initiated by former U.S. President Donald Trump, despite the potential disruptions to the global trade landscape. The country’s resilience stems primarily from strong domestic economic drivers, a diversified export portfolio, and relatively low dependence on merchandise exports for GDP growth, setting it apart from more export-dependent economies like Vietnam and China.
India’s economic growth has remained impressive amid global deceleration. The country recorded a GDP increase of 9.2 percent in 2023–24 and is projected to sustain a growth rate of 6.5 percent in both 2024–25 and 2025–26. This performance contrasts with the International Monetary Fund’s (IMF) global growth projections of just over 3 percent across the same period. Inflation pressures have also eased, with the consumer price index dropping from 5.6 percent in 2023–24 to an estimated 4.6 percent in 2024–25, supported by easing food price volatility.
The strength of India’s domestic economy is a key buffer against external shocks like tariffs. Unlike many export-oriented nations where merchandise exports are pivotal, India’s growth engine is driven largely by internal demand and investment. Merchandise exports constituted about 13 percent of India’s GDP in 2021–22—a figure substantially lower than in economies such as Thailand (70.1 percent) or Malaysia (71.4 percent). Moreover, India’s total exports of goods and services stood at approximately US$ 778 billion in 2023–24, with goods accounting for around 56 percent. The large reliance on services exports, which are not typically affected by tariff measures, also enhances resilience.
The United States remains India’s largest export destination, absorbing nearly 20 percent of its total exports, valued at US$ 86.6 billion in goods in 2024–25. India enjoys a favourable trade balance with the U.S., importing US$ 45.3 billion worth of goods in return. However, merchandise exports to the U.S. equate to only about 2.5 percent of India’s GDP, indicating that new tariffs, while impactful for certain sectors, are unlikely to destabilise the overall economy.
India’s export profile to the U.S. reflects strategic advantages in sectors such as electronic components, textiles, gems and jewellery, and pharmaceuticals, which together comprise nearly 59 percent of exports to the U.S. Notably, textiles and gems are labour-intensive industries where India holds a comparative advantage over competitors like Vietnam and China. This diversification mitigates risks linked to tariff impositions.
Vietnam faces a particularly tough challenge from Trump’s tariff moves, with new 20 percent tariffs on selected goods and a steep 40 percent tariff on items suspected of being transshipped from third countries like China. Transshipping, used to disguise the origin of goods and evade tariffs, accounts for an estimated 16 percent of Vietnam’s exports to the U.S. Vietnam’s significant exports of textiles and electronics to the U.S. surpass India’s by wide margins, but the increased tariffs on transshipped items may erode its competitiveness, especially given China’s dominant role in its export supply chain.
India’s pharmaceutical sector could benefit from the shifting dynamics. While China faces a 34 percent tariff on goods, higher than India’s 26 percent, India dominates in generic drugs to the U.S., contrasting with China’s leading role in active pharmaceutical ingredients (APIs) and finished drugs. As the U.S. seeks to diversify away from Chinese suppliers in strategic sectors like healthcare, India stands to gain.
The IMF’s recent Article IV consultation with India underscores the country’s sound macroeconomic management and policy outlook. Despite some risks from global geopolitical fragmentation and potential domestic consumption weaknesses, the IMF projects steady GDP growth supported by strong private consumption and investment. Inflation is expected to stabilise within target levels, and fiscal consolidation is ongoing. The IMF also highlights India’s resilient financial sector, improved corporate balance sheets, and robust digital public infrastructure as pillars of sustained medium-term growth.
With prudent policy recalibrations and sustained diplomatic engagement, India can not only cushion the impacts of new U.S. tariffs but may also leverage these trade shifts to expand its global export footprint. This evolving trade environment presents an opportunity for India to consolidate its position as a rising economic power with strong internal dynamics and strategic export strengths.
Source: Noah Wire Services
