Trade tensions with the United States, marked by 50% tariffs on Indian exports, have dampened sentiment. However, despite trade-related uncertainties, the growth outlook has been revised upwards, reflecting India’s strong long-term potential.
India was once viewed as one of the primary potential beneficiaries of a Trump 2.0 presidency, but much has changed. In April, President Trump announced 25% tariffs on Indian goods, citing the sizeable trade surplus with the US. This surplus, which reached USD 40 billion in 2024, was driven by exports of pharmaceuticals, textiles, auto parts, and IT services. Trump also imposed an additional 25% levy in August, this time underscoring India’s continued purchase of discounted Russian oil – an issue that has strained US-India relations for some time.
In response, India is pursuing strategic alliances with a broader range of partners. Higher foreign investment from the EU and other Asian countries is expected to partially offset a decline in investment from the US. India’s Ministry of Commerce and Industry is actively supporting exporters by diversifying into new markets, particularly across Asia and Africa, while expanding the range of exported products.
More importantly, India is strengthening domestic consumption, which accounts for approximately 70% of its GDP, through a goods and services tax (GST) reform. This aims to reduce the tax levied on most goods at 12% to 5% and those at 28% to 18%.
Lower taxes and sustained public investment in infrastructure, coupled with the gradual fading of Trump’s tariffs in the second half of 2026, should underpin growth next year. While the long-term investment case for India remains firmly intact, its potential growth rate is expected to stabilise in the 6.5–7.0% range over the coming decade.
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The opinions expressed herein are correct as at 9 September 2025 and are subject to change without notice. Any forecast, projection or target, where provided, is indicative only and is not guaranteed in any way.
