Trump's punishing tariffs test India's economic resilience

India, which has been bracing for the negative impact of Donald Trump’s sweeping trade tariffs, has shown surprising economic resilience, posting record growth of the country’s private sector economy in August. The International Monetary Fund has raised its FY26 and FY27 forecasts for the country, and domestic demand remained robust in the face of the initial 25% tariff imposed by the US. However, India’s ingenuity and resilience are set to be tested to the limit now that Trump has slapped an additional 25% to the earlier 25% export tariff imposed by Washington against India.

New Delhi now faces a whopping 50% tariff on its exports, as punishment for purchasing crude oil from Russia in defiance of a US embargo.

Amidst the gloomy reality of being among the countries facing the highest US tariffs in the world, the findings of an HSBC Flash India PMI survey by S&P Global showing that August marked the quickest pace of business activity growth ever recorded in India, was welcome news. The report found that notwithstanding the 25% tariff that had already come into effect, there had been a surge in volumes and new orders, resulting in India’s private sector recording the quickest pace of business activity growth ever.

According to the HSBC Flash India Composite Output Index, the combined performance of manufacturing and services jumped to 65.2 in August from 61.1 in July, signalling a record growth in overall private sector business activity, while sub-sector performance reflected broad-based strength.

Pranjul Bhandari, chief India economist at HSBC, attributed the strong performance of the private sector economy to a “sharp pick up in new business orders, both export and domestic.”

The HSBC survey found that both manufacturers and service providers had recorded accelerated growth in new orders, including from export markets. Significantly, while there were strong inflows from Asia, the Middle East, and Europe, the United States also contributed to India achieving the milestone fastest level of export orders since 2014.

And an Economic Times report cited the latest corporate affairs ministry data confirming that Trump’s tariff threats did not appear to have deterred new businesses in India, with new company registrations rising for the seventh straight month in July, and limited liability partnerships surging for five months in a row.

As much as the recent reports have pointed to the resilience of the Indian economy, it’s still early days, and the impact of the hefty 50% US tariffs will be bruising for India as the US is its largest export market. While sectors such as generic pharmaceuticals and electronics are exempt, up to two-third of shipments are affected by the 50% tariff.

The manufacturing sector is among those likely to be hard hit, and there are fears of massive job losses. The Indian government, which has remained defiant and refused to buckle under Trump’s pressure, is taking steps to counter the inevitable fallout from the escalated tariffs.

New Delhi is fast-tracking policy reforms, including tax reforms to attract investment, and Prime Minister Narendra Modi has been advocating for “self-centred” economic policies and self-reliance. Mirroring Trump’s trade approach, Modi committed himself to protecting India’s national interests, saying, “I am asking our shopkeepers and traders, do not sell foreign goods. This will provide a huge boost to the Make in India movement. Small contributions by each one will go a long way in achieving self-reliance."

India is also aiming to diversify its export market in a bid to reduce its dependence on the US. And as tensions between New Delhi and Washington mount over the tariffs dispute, a reset of Indo-China relations could be on the cards, following a meeting between Modi and Wang Yi, the Chinese Foreign Minister, on August 19. The two countries, which have been mired in border disputes in the past, downplayed their rivalry and sought to build trade relations. They announced measures to improve relations, including resuming border trade at three points, restarting direct flights, and relaxing visa conditions.

The neighbours also agreed to continue discussions around New Delhi’s desire for China to ease export restrictions on rare earths, fertilisers and some machinery, and Beijing’s aspirations for the relaxation of India’s scrutiny of Chinese investments in the country. The irony is that in trying to punish India, Trump may have pushed New Delhi into the arms of his nemesis - China.

Fawzia Moodley is a freelance journalist.  

BUSINESS REPORT