Donald Trump’s 50% tariff on India kicks in as PM Modi urges self-reliance

[ad_1] <img sizes="(min-width: 1280px) 50vw, (min-width: 1008px) 66vw, 96vw" srcset="https://ichef.bbci.co.uk/news/240/cpsprodpb/3e40/live/5f28ff50-81c8-11f0-b1b7-d5227004453f.jpg.webp 240w,https://ichef.bbci.co.uk/news/320/cpsprodpb/3e40/live/5f28ff50-81c8-11f0-b1b7-d5227004453f.jpg.webp 320w,https://ichef.bbci.co.uk/news/480/cpsprodpb/3e40/live/5f28ff50-81c8-11f0-b1b7-d5227004453f.jpg.webp 480w,https://ichef.bbci.co.uk/news/640/cpsprodpb/3e40/live/5f28ff50-81c8-11f0-b1b7-d5227004453f.jpg.webp 640w,https://ichef.bbci.co.uk/news/800/cpsprodpb/3e40/live/5f28ff50-81c8-11f0-b1b7-d5227004453f.jpg.webp 800w,https://ichef.bbci.co.uk/news/1024/cpsprodpb/3e40/live/5f28ff50-81c8-11f0-b1b7-d5227004453f.jpg.webp 1024w,https://ichef.bbci.co.uk/news/1536/cpsprodpb/3e40/live/5f28ff50-81c8-11f0-b1b7-d5227004453f.jpg.webp 1536w" src="https://ichef.bbci.co.uk/news/480/cpsprodpb/3e40/live/5f28ff50-81c8-11f0-b1b7-d5227004453f.jpg.webp" loading="eager" alt="Bloomberg via Getty Images Narendra Modi, India's prime minister, wearing a bright saffron turban, points to crowds during the nation's Independence Day ceremony at Red Fort in New Delhi, India, on Friday, 15 August, 2025. " class="sc-d1200759-0 dvfjxj"/> Bloomberg by way of Getty Photographs Modi has urged small store house owners and companies to place up "Made in India" boards outdoors their shops

Donald Trump's steep 50% tariffs on India have kicked in, weeks after the US president issued an govt order hitting the Asian nation with a further 25% penalty over its purchases of Russian oil and weapons.

This makes India - one of many US's strongest companions within the Indo-Pacific - among the many nations paying the very best tariffs on the planet. This might deal a blow to exports and progress on the planet's fifth largest financial system, provided that the US was, till just lately, India's largest buying and selling associate.

The tariff setback has despatched the Indian authorities into firefighting mode. Earlier this month, Indian Prime Minister Narendra Modi made a promise to chop taxes to mitigate their financial affect. He has additionally rallied for home self-reliance.

He mentioned {that a} Diwali present within the type of a "huge tax bonanza" was on its manner for the frequent man and the tens of millions of small companies that energy Asia's third largest financial system.

Sporting a shiny saffron turban and addressing crowds of spectators from the ramparts of Delhi's Crimson Fort throughout Independence Day celebrations, Modi additionally urged small store house owners and companies to place up boards of "Swadeshi" or "Made in India" outdoors their shops.

"We must always change into self-reliant - not out of desperation, however out of pleasure," he mentioned. "Financial selfishness is on the rise globally and we mustn't sit and cry about our difficulties, we should rise above and never enable others to carry us of their clutches."

He has since repeated these feedback in not less than two different public addresses this week.

For a lot of watching, that is clearly geared toward countering Donald Trump's brutal 50% tariff fee on India which can disrupt tens of millions of livelihoods throughout the nation's export-driven industries that provide every thing from garments to diamonds and shrimp to American customers.

Amid the blow, Modi's message to his countrymen has been loud and clear - each make in India and spend in India.

The previous has proved more and more troublesome, with the share of producing as a part of India's gross home product (GDP) stagnating at 15% ranges, regardless of his authorities rolling out subsidies and manufacturing incentives over time.

However spurring long-pending tax reforms that instantly put extra money into the arms of individuals may assist the federal government soften a number of the blow, consultants say.

And so, after a $12bn revenue tax giveaway introduced within the finances earlier this yr, Modi is now aiming for an overhaul of India's oblique tax structure – a discount and simplification of the products & service tax (GST).

<img sizes="(min-width: 1280px) 50vw, (min-width: 1008px) 66vw, 96vw" srcset="https://ichef.bbci.co.uk/news/240/cpsprodpb/a723/live/053e6470-81c9-11f0-b1b7-d5227004453f.jpg.webp 240w,https://ichef.bbci.co.uk/news/320/cpsprodpb/a723/live/053e6470-81c9-11f0-b1b7-d5227004453f.jpg.webp 320w,https://ichef.bbci.co.uk/news/480/cpsprodpb/a723/live/053e6470-81c9-11f0-b1b7-d5227004453f.jpg.webp 480w,https://ichef.bbci.co.uk/news/640/cpsprodpb/a723/live/053e6470-81c9-11f0-b1b7-d5227004453f.jpg.webp 640w,https://ichef.bbci.co.uk/news/800/cpsprodpb/a723/live/053e6470-81c9-11f0-b1b7-d5227004453f.jpg.webp 800w,https://ichef.bbci.co.uk/news/1024/cpsprodpb/a723/live/053e6470-81c9-11f0-b1b7-d5227004453f.jpg.webp 1024w,https://ichef.bbci.co.uk/news/1536/cpsprodpb/a723/live/053e6470-81c9-11f0-b1b7-d5227004453f.jpg.webp 1536w" src="https://ichef.bbci.co.uk/news/480/cpsprodpb/a723/live/053e6470-81c9-11f0-b1b7-d5227004453f.jpg.webp" loading="lazy" alt="AFP via Getty Images A burnt effigy of US President Donald Trump seen with flaming embers. Activists from different unions were part of a protest against the tariff hikes imposed by the US on India during a demonstration in Kolkata on August 13, 2025. " class="sc-d1200759-0 dvfjxj"/> AFP by way of Getty Photographs Donald Trump's 50% tariff fee on India comes into impact on 27 August

GST, which was launched eight years in the past, changed a maze of oblique taxes to scale back compliance and the price of doing enterprise.

However consultants say it has too many thresholds and exemptions, making the system extraordinarily difficult. They've repeatedly known as for it to be revamped.

Now, Modi has exactly promised that, with India's finance ministry placing out a proposal for a simplified two-tier GST system.

"Mixed with the revenue tax lower in place from April 2025... the GST fee reforms [likely worth US$20bn; £14.7bn] ought to collectively present a significant push to consumption," analysts from Jeffries, a US brokerage home, mentioned after the announcement.

Personal consumption is a mainstay of India's financial system, contributing to just about 60% of the nation's GDP. Whereas rural spending – supported by a bumper harvest – has remained sturdy, demand for items and companies in cities has continued to decelerate as a result of decrease wages and job cuts in main sectors like IT, put up the pandemic.

Modi's "fiscal stimulus" or tax cuts ought to assist guarantee a consumption restoration, in line with funding banking agency Morgan Stanley. It would push GDP up and drag inflation down.

"That is notably essential amid headwinds from ongoing world geopolitical tensions and antagonistic world tariff-related developments which may impair exterior demand," Morgan Stanley mentioned.

Among the many sectors more than likely to profit from the tax breaks are consumer-facing ones akin to, scooters, small automobiles, clothes and even issues like cement that goes into making houses, the place demand usually picks up tempo round Diwali.

Whereas the specifics are unknown, most analysts estimate that the income loss on account of a decrease GST could be offset by surplus levy collections and better than budgeted dividends from India's central financial institution.

In response to Swiss funding financial institution UBS, the GST cuts can even have a bigger "multiplier impact" than the earlier company and revenue tax cuts undertaken by Modi, as they "straight have an effect on consumption on the level of buy, doubtlessly resulting in increased client spending".

<img sizes="(min-width: 1280px) 50vw, (min-width: 1008px) 66vw, 96vw" srcset="https://ichef.bbci.co.uk/news/240/cpsprodpb/7da8/live/42f3d110-81c9-11f0-b1b7-d5227004453f.jpg.webp 240w,https://ichef.bbci.co.uk/news/320/cpsprodpb/7da8/live/42f3d110-81c9-11f0-b1b7-d5227004453f.jpg.webp 320w,https://ichef.bbci.co.uk/news/480/cpsprodpb/7da8/live/42f3d110-81c9-11f0-b1b7-d5227004453f.jpg.webp 480w,https://ichef.bbci.co.uk/news/640/cpsprodpb/7da8/live/42f3d110-81c9-11f0-b1b7-d5227004453f.jpg.webp 640w,https://ichef.bbci.co.uk/news/800/cpsprodpb/7da8/live/42f3d110-81c9-11f0-b1b7-d5227004453f.jpg.webp 800w,https://ichef.bbci.co.uk/news/1024/cpsprodpb/7da8/live/42f3d110-81c9-11f0-b1b7-d5227004453f.jpg.webp 1024w,https://ichef.bbci.co.uk/news/1536/cpsprodpb/7da8/live/42f3d110-81c9-11f0-b1b7-d5227004453f.jpg.webp 1536w" src="https://ichef.bbci.co.uk/news/480/cpsprodpb/7da8/live/42f3d110-81c9-11f0-b1b7-d5227004453f.jpg.webp" loading="lazy" alt="AFP via Getty Images A garment worker wearing a green dress and saffron scarf sorts tailored shirts at an apparel manufacturing unit in Bengaluru on August 25, 2025." class="sc-d1200759-0 dvfjxj"/> AFP by way of Getty Photographs Tariffs disrupt tens of millions of livelihoods throughout the nation's export-driven industries akin to textiles

Modi's tax handouts may additionally enhance the likelihood of an extra rate of interest discount by India's central financial institution, which has already slashed charges by 1% previously few months - one thing that's more likely to spur extra lending, in line with analysts.

This, together with a lift within the salaries of some half 1,000,000 authorities workers that kicks in early subsequent yr, will assist India's financial system retain its progress momentum, they are saying.

India's inventory markets have cheered these bulletins. And regardless of the panic attributable to commerce uncertainties, earlier this month, India additionally acquired a uncommon sovereign score improve from S&P International, after a niche of 18 years. A sovereign score measures how dangerous it's to lend to a authorities or spend money on a rustic.

That is important as a result of it may decrease the federal government's borrowing prices and enhance international funding flows into the nation.

However at the same time as Modi rushes by way of with long-delayed reforms, India's progress prospects have slowed considerably from the 8% ranges seen just a few years in the past, and its exterior disaster exhibits no signal of ebbing.

The confrontation between Delhi and Washington, particularly over the latter's power purchases from Russia, have solely intensified and commerce negotiations which had been set to start earlier this week, have been known as off.

In the meantime, at 50%, the tariffs on India are akin to a sanction on commerce between the world's largest and quickest rising economies, say consultants - a situation that might have been unthinkable even just some months in the past.