India Boosts Domestic Economy Amid US Tariff Storm
India has been grappling with a significant increase in US tariffs, with more than half of its exports to the United States now affected. These tariffs, labeled 'unfair and unreasonable' by India, have targeted labor-intensive industries such as textiles, gems and jewellery, seafood, and leather goods. Instead of retaliating, India has chosen to bolster its domestic economy through structural reforms.
Chintan Vaishnav, former Director of the Atal Innovation Mission, recently addressed the US-India Chamber of Commerce Austin's 3rd Annual Summit. He highlighted India's transformation from a source of labor and talent to a hub of original ideas and innovation. Vaishnav's speech comes at a critical juncture in the US-India relationship, which is currently at an inflection point.
The GST Council has approved a sweeping overhaul of the tax system, moving to a two-tier structure of 5% and 18% rates, with a 40% demerit rate for luxury and sin goods. This reform, effective September 22, 2025, is part of India's strategy to cushion the domestic economy against the impact of increased US tariffs. India's Chief Economic Adviser projects a 0.5-0.6% GDP impact for FY26 due to the tariffs.
President Donald Trump's decision to double US tariffs on Indian goods, from 25% to 50%, has further complicated the situation. This move was prompted by India's continued purchases of discounted Russian oil. Despite these challenges, India's trade presence in the United States remains robust, with Texas alone ranking as the eighth-largest economy in the world if considered a country.
With over half of India's exports to the US affected, the country has chosen to strengthen its domestic economy through structural reforms rather than escalating trade tensions. The GST Council's recent overhaul and the insights shared by Chintan Vaishnav at the US-India Chamber of Commerce summit underscore India's commitment to innovation and economic resilience in the face of increased US tariffs.
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