Trump’s Tariffs: India’s Chance to Reshape Its Economic Destiny
In this storm, India has a chance to reshape its destiny – with bold reforms that ignite demand, attract investment and rival China’s manufacturing prowess. The paradox of power is that it burns the hands of those who misread the mandate as a flaming sword. When democratically elected leaders like Donald Trump use their mandate not as a bulwark but as a cudgel, imposing sweeping tariffs to prop up the glittering illusion of ‘America First’, they don’t just shake up rivals but set fire to the foundations of their own warped economic dream.
Trump’s hefty tariffs are a direct blow to India’s economic heartbeat. Pharmaceuticals ($12.2 billion), textiles ($8 billion), electronics and automobiles – the key pillars of India’s $74 billion US exports – are subject to 50% duties, which could shave more than 0.50% of GDP, according to various estimates. The faltering currency at Rs 87.95 per dollar adds to the pain for India’s 400 million-strong middle class, whose purchasing power drives 50% of consumption. But it is in this storm that India has a chance to reverse its economic course, by adopting a model that prioritises demand. Indeed, demand has not grown proportionately with excess supply.
To boost demand, India’s middle class—burdened by 30-40% income tax on income above Rs 15 lakh—needs immediate relief. A reduction in tax rate to 15% on income below Rs 15 lakh would provide additional income of 12-15%, unlocking $50 billion in new consumption, according to NITI Aayog’s 2024 estimate. In rural India, where consumption growth is just 4.5% in 2024, and 6.2% in cities, direct cash support is necessary. Increasing the corpus of PM Garib Kalyan Anna Yojana from Rs 2 lakh crore to Rs 5,000 per month for 10 crore rural households could boost rural demand by 10%, adding 0.5% to GDP. This would be a bottom-up strategy, replacing the failed trickle-down model of corporate tax cuts of Rs 1.45 lakh crore since 2019, which have done little to create jobs.
Employment should be the top priority. The employment scenario can be transformed by allowing 100% FDI in defence, rural infrastructure, sanitation, water conservation and road transport and making technology transfer mandatory. India's $81 billion defence market, which is growing at 8% annually, can create 1.2 million jobs by 2030. Road transport, the backbone of India's $3.5 trillion economy, needs $500 billion for 1 lakh km of new highways. FDI inflows can increase by 30% by making land acquisition easier and providing a 20-year tax-exemption provision, just as Vietnam benefited after tariffs.
Technology is India's hidden advantage, but Trump's H-1B visa limitations pose a risk to the $250 billion IT industry, which employs 5.4 million individuals. India should focus on domestic growth and motivate companies like TCS and Infosys to innovate in AI, blockchain, and 6G technologies. A 2024 NASSCOM report indicates that a $1 billion investment in tech research and development can generate 10,000 jobs, while a $10 billion investment could create 100,000 jobs by 2028. Companies should be mandated to increase their R&D investment from the current 0.7% to 2% of their revenue. India's corporate tax rate of 25% is attractive for new manufacturing ventures. It's time to challenge the dominance of US rating agencies and establish a system that benefits 1.4 billion Indians rather than catering to Wall Street's interests. Moody's, S&P, and Fitch often undervalue India's potential, whereas China, with a growth rate of only 4.6%, receives an A1 rating.
US consultancies like McKinsey, EY and PwC, which have been hit with US settlements of $641 million for conflict of interest, give advice inappropriate for 70% of India's rural economy. Their advice adds to the bureaucratic burden and opens doors to endless consultations. India should create a National Policy Research Institute staffed with IIT and IIM graduates to design country-specific reforms. For example, digitising land records with blockchain, as a pilot project in Telangana, could save $5 billion in disputes every year. GST and decriminalisation of minor company law violations could free up $15 billion in capital, boosting small businesses. Mahindra Group chairman Anand Mahindra’s call for “Ease of doing business is our shield against tariffs” must be implemented. India’s 63rd rank in the World Bank’s Ease of Doing Business Index is behind Vietnam’s 70th rank. Single window clearance could catapult India into the top 50, attracting $100 billion in FDI by 2030. India should adopt the mantra of “building institutions for India”.
By Trump and for Trump cannot be the rule. The threat of 50% tariffs on India and 100% tariffs on BRICS, which is moving towards de-dollarisation, shows America's fear of a multipolar world. As the world's third largest economy, India should lead BRICS to redefine global trade, sideline the dollar and counter US economic nationalism. The dollar, which controls 88% of global trade via SWIFT, is America's financial hold. India's $10 billion rupee-ruble trade with Russia in 2024, up 20% from 2023, shows that local currencies work. Spreading this across BRICS' $26 trillion GDP could save $20 billion. Restricting SWIFT to CIPS, as China does, will protect trade from US sanctions. India should support a BRICS-backed trading currency, backed by the New Development Bank. India's $250 billion trade with BRICS members could grow 15% in 2024, but high tariffs limit its potential. According to CII, a BRICS free trade agreement with an average tariff of 5% could increase India's exports by $60 billion by 2030.
Hosting a BRICS business summit in 2026 would strengthen India's global power. According to the FT, Trump's tariffs will transform supply chains. India's 44% share in US smartphone imports could lead to $50 billion in exports. Trade deals with the EU, UK and ASEAN (trade worth $200 billion in 2024) could give India the role of "vishwaguru". Harsh Goenka, chairman of RPG Group, said, "Trump's chaos is India's chance to shine." India should lead, not follow and turn adversity into glorious triumphs. Trump's tariff atrocities are giving India an opportunity for historic success. By cutting taxes, opening up FDI and leveraging technology, India can build a competitive economy. To paraphrase Anand Mahindra's battle cry, "This is the moment to unleash India's potential." Make India Great with courage and brilliance-start now.