U.S. President Donald Trump’s decision to impose a steep 50 percent tariff on Indian goods officially took effect this week, intensifying trade tensions between the two countries and prompting Indian Prime Minister Narendra Modi to push a renewed call for economic self-reliance.
The tariff, which comes on top of an earlier 25 percent penalty linked to India’s continued purchases of Russian oil and weapons, has placed New Delhi among the countries facing some of the highest trade barriers with the United States. Analysts warn the move could severely disrupt India’s export-driven industries from textiles and gems to seafood threatening millions of jobs in Asia’s third-largest economy.
In response, Prime Minister Modi has turned to sweeping tax reforms to soften the blow. During Independence Day celebrations at Delhi’s Red Fort, wearing a saffron turban, Modi urged citizens and small business owners to proudly display “Swadeshi” or “Made in India” signs at their shops.
“We should become self-reliant, not out of desperation, but out of pride,” Modi declared, calling on Indians to both manufacture and consume domestically. His government has since unveiled plans to simplify the Goods and Services Tax (GST) system into a two-tier structure, while also promising relief to households and small businesses through income and indirect tax cuts.
Analysts at U.S. brokerage Jefferies estimate the reforms could inject as much as $20 billion into the economy, spurring consumer spending. Investment banks including Morgan Stanley and UBS believe the fiscal stimulus will lift private consumption — which already accounts for nearly 60 percent of India’s GDP — and may even pave the way for further interest rate cuts by the central bank.
India’s economy, once growing above 8 percent, has slowed in recent years amid global uncertainty. Job cuts in major sectors such as IT and a slowdown in urban demand have added pressure. Still, rural consumption has remained strong, supported by a bumper harvest.
The trade clash has complicated already tense relations between Washington and New Delhi, particularly over India’s energy dealings with Moscow. Trade negotiations that were expected to open this week have now been shelved.
Despite these challenges, India recently received a rare sovereign rating upgrade from S&P Global its first in 18 years boosting investor confidence and lowering borrowing costs. Meanwhile, domestic markets have reacted positively to Modi’s tax stimulus, even as the tariffs loom large over long-term trade prospects.
Experts caution that with tariffs effectively acting as sanctions on trade between the world’s largest and fastest-growing economies, the fallout could reshape global supply chains and redefine India’s path toward economic resilience.