In the face of newly imposed 50% tariffs by the United States, India is exploring multiple strategies to mitigate the economic impact. These strategies range from boosting domestic demand and diversifying export markets to long-term investments in competitiveness and strategic trade partnerships.
One of the primary approaches involves strengthening domestic consumption. V Anantha Nageswaran, Prime Minister Modi's chief economic advisor, suggests that a strong internal market and rising rural consumption can offset the losses incurred due to the tariffs. He believes that the job losses, if any, will be mainly confined to export-oriented units heavily reliant on the American market. Nageswaran also expressed optimism that a good monsoon season will further boost agricultural and rural demand, compensating for the tariff impact. Ajay Srivastava from the Global Trade Research Initiative (GTRI) supports this view, noting that India's domestic market absorbs a significant portion of its production, with room for further absorption due to the country's economic growth.
Diversification of export markets is another key strategy. Rather than bowing down to pressure, India is focusing on expanding into new markets. Union Commerce and Industry Minister Piyush Goyal has emphasized the ongoing efforts to diversify exports and expressed confidence that India's export performance will surpass previous records. This includes actively seeking alternative trading partners, such as Brazil, China, Russia, Britain, Japan, Australia, and the EU. India is also planning dedicated outreach programs in 40 key markets, including the UK, Japan, and South Korea, to boost textile exports. These programs aim to position India as a reliable supplier of sustainable textiles, leveraging Free Trade Agreements (FTAs) and international trade fairs.
Several reports suggest focusing on specific sectors and strategic partnerships. Sectors like pharmaceuticals, semiconductors, electronics and IT are currently exempt from the tariffs. For sectors facing high tariffs, such as textiles, gems and jewelry, seafood, and leather, diversification into markets like China, Japan, UAE and Hong Kong are being explored. Strengthening partnerships with Europe and Eurasian economies is also a priority, with upcoming summits providing platforms for exploring joint strategies.
Long-term strategies involve climbing the value chain and investing in competitiveness. Raghuram Rajan, former RBI governor, suggests moving away from raw commodity exports towards value-added products like processed foods, technical textiles, and specialty chemicals. He also stresses the importance of stronger infrastructure, faster clearances, and productivity gains to make Indian exports resilient under higher tariff regimes.
Despite the challenges, India has maintained a cautiously optimistic tone, signaling openness to resolving differences with the U.S. New Delhi is engaging in backchannel efforts to communicate its message in Washington through US lawmakers and the Indian-American business community. Some analysts believe that the tariffs are a pressure tactic by the U.S. to get India to accept its demands in the proposed bilateral trade agreement.
Overall, India's strategy to offset the impact of Trump's tariffs involves a multi-pronged approach. This includes bolstering domestic demand, diversifying export markets, focusing on key sectors, and pursuing long-term investments in competitiveness and strategic partnerships. While the tariffs pose a significant threat, India is actively working to turn the challenge into an opportunity for building a more diversified, resilient, and strategic trade ecosystem.
