India Navigates U.S. Trade Pressure and Domestic Reforms

India’s economy is facing considerable uncertainty due to ongoing trade negotiations with the United States, according to Suman Bery, vice chairman of NITI Aayog, the nation’s primary policy think tank. The main sources of uncertainty arise from American tariff threats and demands for increased access to Indian markets, particularly for agricultural and dairy products. Bery stated in an interview that while the outcome of talks remains unclear, discussions are active and there is optimism about reaching a deal. He described the current environment as notably more uncertain than in previous years, with no final resolution yet in sight regarding the U.S. negotiations. 1 2 3

NITI Aayog, founded in 2015 as the successor to the Planning Commission, is instrumental in devising India’s long-term policy strategies. Suman Bery, who became its vice chairman in May 2022, brings extensive experience from previous roles at the World Bank and Royal Dutch Shell. The Indian economy has displayed robust growth, with the Reserve Bank of India projecting GDP growth of 6.8% for the year ending March 2026 and 6.6% for the subsequent year. This sustained growth, averaging above 6.5% annually for the past two decades, has been driven by domestic consumption and investment. 4 5

Tensions between India and the U.S. escalated notably on July 31 and August 6, when President Donald Trump imposed dual rounds of 25% tariffs on Indian goods in response to India’s imports of Russian oil, resulting in a cumulative 50% tariff on certain products. The U.S. government’s key demand has been for India to open its market to American agricultural and dairy exports. This request is highly sensitive in India, where agriculture employs more than 40% of the labor force, making it a critical political issue. Prime Minister Narendra Modi has assured Indian farmers that their interests will be safeguarded in any deal. Bery emphasized that for India, the issue goes beyond market access—it is about the livelihoods of millions of poor farmers. 6 7 8

Amid shifting global supply chains, Bery asserted India is working to position itself as an attractive alternative manufacturing hub, leveraging programs like the Production-Linked Incentive (PLI), which has already attracted parts of Apple’s supply chain. Still, he remarked that a major shift has not yet occurred and noted competition from China, which remains a dominant player, though rising Chinese labor costs are prompting investors to consider India as a destination. Domestically, the Modi government is focused on reforms in taxes, land, and labor. Recent progress includes the passage of a simplified income tax law and overhaul of the Goods and Services Tax (GST), streamlining it into two rates (5% and 18%). However, land and labor reforms remain difficult due to their state-level governance and ongoing political and technical challenges. 9 10 11 12

While the “Make in India” initiative, launched in 2014, has led to improvements such as a jump in the ease of doing business ranking (from 142nd to 63rd) and increased foreign direct investment, the share of manufacturing in GDP remains low at 14.3% in 2024—lower than a decade ago. The goal of reaching a 25% share has been postponed to 2030. Tamil Nadu stands out as a success story in manufacturing, though nationwide results are mixed. 13 14

India’s relationship with China is gradually improving following diplomatic engagements in 2024. While China is India’s second-largest trading partner, the relationship is uneven, and Chinese investment in India is limited. To safeguard domestic companies, India implemented strict investment approval rules for neighboring countries in 2020, widely viewed as targeting China. Bery defended this rule as necessary during the pandemic and noted similar protective measures in other countries, though he admitted it introduces friction into bilateral ties. 15 16 17 18 19 20 21