India resilient amid US tariff tantrum & shifting global alliances

INDIA is facing an alarming breakdown of ties with the US and that could potentially have repercussions on its economic growth. Bilateral trade pact talks have led to a further deterioration in ties. There are concerns over the impact of a potential decoupling from the US economy in trade. Yet, the outlook is not as grim as may appear.The most important element to be taken into account is the status of our economy. Though investment banks expect the tariff crisis to cut growth by 0.3-0.5 percentage points, it is set to expand at 6-6.2 per cent in 2025. Short-term outlook remains bright, with the RBI expecting demand to grow. Its latest assessment cites easing inflation, improved kharif prospects and frontloading of government expenditures as reasons for the optimism.Most crucially, inflation is under control. The central bank has revised projections from 3.7 to 3.1 per cent for 2025-26. In fact, inflation dipped to 1.6 per cent in July, the lowest ever in eight years. It largely reflects an easing of food prices.The second element to be considered is the resilience of our economy in the face of global geopolitical challenges. The large domestic market provides a safety net for manufacturers, as seen during the Ukraine war in 2022 when India was able to weather the storm. Its growth rate was 7 per cent in 2022-23 and 8.2 per cent in 2023-24, even as most advanced economies faced high inflation and severe recessionary trends. Growth has moderated since then to about 6.5 per cent in 2024-25. In the current fiscal, projections have been at 6.5-6.7 per cent, but are being revised downwards due to US tariff uncertainties.It is in this backdrop that one must consider the impact of US tariffs. The threat to impose 50 per cent tariffs on all merchandise goods is a transparent negotiating tactic, though used in a bullying manner. The aim is to prise open closed agriculture and dairy sectors so that market access is provided to US producers. While this is a red line that cannot be breached immediately, it should be considered dispassionately in the long run. Some of our agricultural economists have argued that a limited opening up of the sector might even benefit Indian farmers.The problem is that Trump's pressure tactics have only heightened political sensitivity to the issue. Any concessions made by the Modi government in the farm sector will now be decried as surrendering to unreasonable demands. Had the trade talks been carried out in a low-key manner, it may have been possible to make limited concessions without inviting the charge of giving in to threats. But there is little hope of a low-profile negotiation as long as Trump is President.In fact, the tariffs have snowballed into a wider affair. Trump's demand that India should stop buying Russian oil is linked to trade talks. It is again a threat, which is unacceptable to any government. This is despite the fact that Indian refiners can shift to non-Russian crudes now since the price gap has narrowed down.Trade and oil are not the only irritants in the India-US ties in recent days. The warmth towards Pakistan and jibes against India are increasing in tone and tenor. The threat to use nuclear weapons by Pakistan army chief Asim Munir has been made on US soil.These developments are leading to a realignment of global alliances. A flurry of official visits to Moscow, including discussions on defence purchases, may have been scheduled earlier, but the timing is significant. PM Narendra Modi will be attending the Shanghai Cooperation Organisation (SCO) summit, where a meeting with Chinese Premier Xi Jinping is imminent.In other words, the leading lights of the BRICS bloc are leaning towards each other. Not too long ago, the grouping was considered unviable, given the disparate nature of member countries. The situation has now altered completely, prompted by Trump's insistence on viewing the bloc as a potential enemy.After the last summit in Russia, the idea of de-dollarisation was dismissed by India. The proposal is now being discussed in terms of using alternative currencies for trade within the bloc. These options are being examined as Western sanctions that could impact energy security are sought to be imposed on India for buying Russian oil.Thus, Trump's aggression is leading to a shift in global alliances. While G-7 countries have a 30 per cent share of the world's GDP, the BRICS bloc commands a 35 per cent share. The weight is on the side of BRICS. It must be taken as a force to reckon with in creating a multipolar world.Sushma Ramachandran is senior financial journalist.

India resilient amid US tariff tantrum & shifting global alliances

Sushma Ramachandran

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