New trade rules from Washington have just started, hitting imports from India with duties as high as 50 percent. This move, made under President Donald Trump, greatly increases existing trade penalties. It follows India’s purchases of oil and weapons from Russia. This puts India, once a key partner in the Indo-Pacific region, among countries facing some of the world’s highest tariffs. It directly impacts India’s exports and its overall economic outlook. India is the fifth-largest economy globally.
India’s government is quickly looking for ways to respond. Prime Minister Narendra Modi spoke on India’s National Day. He promised a “big Diwali gift” to the nation: major tax cuts for ordinary people and small businesses. He also pushed for a “Make in India, Use Indian goods” approach. Modi urged small shops to display “Swadeshi” signs. This aims to build pride in self-reliance across the country.
India has tried to boost local manufacturing for years. Still, industry makes up only about 15 percent of its total economy. So, Modi is now using tax policies to encourage spending. Earlier this year, he announced $12 billion in income tax cuts. Now, the government plans to simplify indirect taxes. They will cut the Goods & Service Tax (GST) down to just two levels. This change should make buying things easier and get people to spend more.
Financial experts from Jeffries and Morgan Stanley believe these steps could inject roughly $20 billion into the economy. This boost would target consumption, which makes up almost 60 percent of India’s GDP. They expect to see more spending on items like motorcycles, small cars, and clothing. Even demand for cement often rises during festive seasons. At the same time, India’s central bank might lower interest rates again. They have already cut rates by one percent in recent months. Lower rates make borrowing cheaper.
Despite rising trade tensions that led to canceled talks between India and the United States, India’s stock market has reacted well. Also, S&P Global recently upgraded India’s credit rating. This is the first time in 18 years this has happened. A better credit rating makes it cheaper for the country to borrow money. It also attracts more foreign investment.
However, experts warn that even with these efforts, India’s economy still faces challenges from outside. The 50 percent US tariff is especially tough. Some see it as “trade sanctions” between two major economies. This situation seemed almost impossible just a few months ago.
Source: BBC