In response to the stinging 50% tariffs imposed by the United States, India is opting for a strategic reset, prioritizing domestic reforms and seeking new trade alliances rather than engaging in retaliatory measures. The focus is on fast-tracking reforms to improve the ease of doing business, boost manufacturing, and attract investment, aiming to reduce reliance on an unpredictable global market.
Policy Overhaul for Manufacturing and Investment
The Indian government is working on a reform-heavy plan to enhance the ease of doing business, strengthen the manufacturing sector, and maintain foreign investment flows. This includes implementing a single-window clearance system modeled on passport services to streamline approvals and processes. Efforts are also being made to simplify land acquisition and contract enforcement, addressing long-standing challenges for businesses operating in India. A deregulation commission is also planned, aimed at removing outdated compliances.
Make in India and Investment
Launched in 2014, the "Make in India" initiative seeks to transform India into a global manufacturing hub by attracting foreign investment, promoting innovation, and creating a more competitive environment. The Production-Linked Incentive (PLI) Schemes, offering financial incentives to both local and foreign manufacturers who increase output in sectors like electronics, pharmaceuticals, and renewable energy, are also designed to encourage growth.
New Trade Pacts and Export Promotion
In addition to domestic reforms, India is actively pursuing new trade agreements with trusted partners to diversify its export markets and reduce dependence on any single nation. The government is also exploring sector-specific export promotion schemes to help industries most affected by the US tariffs, providing long-term stability rather than short-term fixes. Furthermore, the administration wants to increase exports by ₹1.1 lakh crore, create 22 lakh jobs, and earn ₹4 lakh crore in income.
Impact and Mitigation
The US tariffs, which will double to 50% on August 27, target approximately $6.2 billion in garment exports, $1.3 billion in leather goods, and billions more in chemicals, pharmaceuticals, shrimp, and petroleum products. Moody's Ratings estimates that India's GDP growth could slow down by about 30 basis points to 6% in the current fiscal year if the tariffs are implemented. The government believes that India's strong macroeconomic stability and resilient domestic demand will help buffer against these external risks.
The government is also incentivizing job creation in labor-intensive sectors like textiles, garments, gems, and jewelry. The performance of the employment-linked incentive scheme and the implementation of the new labor code are being closely monitored.
Geographic Advantages
India possesses a strategic geographic location with logistical advantages for exporting goods to the Middle East, Europe, Africa, and Asia. Its proximity to emerging economies facilitates the building of trade networks and connections with global markets.
Political Considerations
Prime Minister Narendra Modi has declared his readiness to pay a "very heavy price" to protect the interests of Indian farmers, resisting US pressure to allow imports of American genetically modified crops and duty-free imports on farm and dairy products. Preserving the interests of farmers, a powerful political lobby, is a sensitive area for the Modi government.
US-India Relations
Despite the tariff hikes, India is still hoping to finalize a long-pending Bilateral Trade Agreement (BTA) with the US. However, US President Donald Trump has ruled out trade talks with New Delhi unless the tariff issue is resolved.
Overall Strategy
India's strategy involves a multi-pronged approach:
By focusing on these strategies, India aims to mitigate the impact of the US tariffs, strengthen its manufacturing base, and emerge as a more resilient and competitive player in the global economy.
