A steep 50% tariff imposed by former U.S. President Donald Trump on Indian exports came into effect on Tuesday (August 27), weeks after his executive order penalised India for its continued purchases of Russian oil and arms.

The tariff now places India among the highest-taxed U.S. trade partners globally, raising concerns over its impact on exports and economic growth. The United States had recently been India’s top trading partner.

In response, Indian Prime Minister Narendra Modi has unveiled a sweeping economic stimulus. Promising tax relief for citizens and small businesses, Modi has urged a renewed push for self-reliance and domestic consumption. 

"We must become self-reliant — not out of desperation, but pride," he said during Independence Day celebrations at Delhi’s Red Fort.

The Modi government is also preparing a major overhaul of the Goods and Services Tax (GST), aiming for simplification and reduction. This follows a $12 billion income tax cut announced earlier in the year. Analysts expect these moves to boost consumption, which accounts for nearly 60% of India’s GDP.

U.S. brokerage Jeffries estimates the GST reforms could inject an additional $20 billion into the economy. Investment bank Morgan Stanley said the tax cuts are critical to offset the negative impact of global tensions and tariffs.

The new levies are expected to hit India’s export-driven sectors — textiles, seafood, gems — hard. Trade negotiations between India and the U.S. have been suspended, and diplomatic tensions over energy ties with Russia are rising.

Despite the pressure, India received a sovereign credit rating upgrade from S&P Global this month, signalling investor confidence. Still, economists warn that growth has cooled, and the external challenges remain stark.

Source: BBC

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