India’s economy has enough dynamics to take on 50% US tariffs

In April 2020, the world was in lockdown, economies were in free fall, stock markets were crashing, and unemployment rates spiking. Yet a year later, India was leading the global recovery - it posted a GDP growth of 9.1%, attracted a record $84 billion in foreign direct investments, and minted over 40 new ‘unicorns’ in a single year.

It was a staggering turnaround, but not an anomaly. If anything, it underscored what is becoming increasingly clear over the years: Resilience is written into India’s economic DNA.

That resilience faces a fresh test. The Trump administration’s new tariff measures, designed to reset trade balances, could slow India’s exports, squeeze margins for certain industries, and complicate supply chains.

The move is likely to grab headlines and stoke political chatter. But here’s the bigger truth: this is a short-term squall in a much longer, steadier voyage.

India has been here before and often in far rougher waters. During COVID-19, the government’s mix of fiscal stimulus, liquidity support, and an accelerated vaccination drive restored investor confidence faster than in many G20 peers.

When inflation peaked at 6.7% in 2022 driven by global food and energy price shocks, timely policies by Reserve Bank of India helped guide inflation back within the RBI’s tolerance band (2%-6%).

Over the past decade, key structural changes have been pushed through: The Goods and Services Tax (GST) unified a $3.7 trillion economy (2023-24 figures) into a single market.

The Insolvency and Bankruptcy Code slashed resolution timelines for distressed assets from years to months.

Digital infrastructure through Aadhaar and UPI facilitated over 100 billion digital transactions in 2023 alone.

A BBC report last year highlighted how ‘India's growth is outpacing other major economies, its banks are strong, and the government's finances are stable despite a painful pandemic’.

A quieter transformation is also underway: the rise of a confident entrepreneurial class. India’s startup ecosystem - now the world’s third largest - is expanding. From logistics to agri-tech and even the defence sector, founders aren’t waiting for favourable trade winds; they’re creating their own.

There are more factors in India’s favour. When it comes to external debt, an EY report underscores how ‘India’s lower indebtedness puts it in a relatively better off position … to undertake macro stabilization efforts in the face of economic cycles and external shocks’.

This doesn’t mean tariffs will be painless. Some exporters, particularly in labour-intensive sectors like textiles, gems, and engineering goods, could face margin pressures. But the combination of domestic demand, reform momentum, and the ability to pivot towards other markets will limit the damage.

In fact, the current headwind could accelerate trends already in motion: diversification of trade partners, strengthening of regional value chains, and investment in higher-value manufacturing. For instance, the EU is India's largest trading partner, accounting for 124 billion euro worth of total trade in goods in 2023, and there is huge potential for deepening EU-India ties.

The Trump tariffs may make for good politics in Washington, but in New Delhi, Mumbai, and Bengaluru, the response will be pragmatic and forward-looking. Resilience, clearly, is more than survival; it’s the ability to emerge stronger after every shock.

That is India’s real competitive edge - and its surest guarantee that the next chapter will be bigger than the last.