In response to rising trade tensions and the imposition of a 50% tariff by the United States, India is actively pursuing a multi-pronged strategy to mitigate the impact on its economy. These tariffs, levied by the U.S. as a penalty for India's continued purchase of Russian oil amid the Ukraine conflict, have spurred concerns about potential job losses and slower economic growth. The Indian government estimates that $48.2 billion worth of exports will be affected by these tariffs.

Diversifying Export Markets

A key component of India's strategy involves diversifying its export markets to reduce reliance on the U.S.. This includes accelerating trade agreements with the EU, ASEAN, and African nations. The India-EFTA Trade Deal, signed in early 2025, is expected to boost textile and engineering exports by providing duty-free access to European markets. India is also targeting 40 key markets, including the UK, Japan, and South Korea, to boost textile exports. Export Promotion Councils (EPCs) will play a crucial role in this diversification strategy by conducting market mapping, identifying high-demand products, and connecting specialized production clusters to opportunities in the top 40 countries. FTAs and negotiations with these regions are expected to enhance the competitiveness of Indian exports.

Boosting Local Demand

In addition to expanding export markets, India is focused on boosting local demand to cushion the blow from the tariffs. Prime Minister Narendra Modi has urged Indian citizens to prioritize purchasing goods made in India. The government is also considering measures to support exporters, including financial incentives, favorable loan rates, and steps to boost local consumption ahead of the Diwali festival. These measures include changes to the goods and services tax (GST) to lower costs for insurance, cars, and appliances.

Sector-Specific Strategies

The tariffs are expected to have varying impacts on different sectors. The textile, gems and jewelry, and shrimp sectors are anticipated to be significantly affected. To address these challenges, Indian companies are shifting toward value-added products instead of relying on low-margin exports. For example, in the chemical sector, firms are focusing on specialty chemicals with higher margins and lower tariff sensitivity. The government is also providing support through Production-Linked Incentives (PLI) schemes, which encourage domestic manufacturing and export competitiveness, and the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme.

Impact and Challenges

The 50% tariff is expected to impact 66% of India's exports to the United States and could slash India's exports to the U.S. to $49.6 billion next year. The Chamber of Trade and Industry (CTI) has warned that the tariffs could threaten the livelihoods of lakhs of Indians and impact industries. Some product lines could become unviable overnight, particularly for small and medium enterprises dependent on the U.S. market. The increased tariffs could make Indian goods up to 35% costlier in the American market compared to competitors, prompting buyers to look elsewhere.

Geopolitical Implications

The tariff war has also had geopolitical consequences for Washington. Since the announcement of the tariffs, Prime Minister Modi has fostered closer ties with members of the BRICS coalition, including China, Russia, Brazil, and South Africa. He is also scheduled to visit China later this week, marking his first visit to the country in seven years.

Overall, India is adopting a proactive and comprehensive approach to counter the challenges posed by the U.S. tariffs. By diversifying export markets, boosting local demand, and implementing sector-specific strategies, India aims to build a more resilient and self-reliant economy.