Current Affairs

India’s ‘Swadeshi’ Pivot Moment: Responding to US Additional 25% Tariffs

Author: VisionIAS Editorial Team

Aug 27, 2025Current Affairs9 min read

India’s ‘Swadeshi’ Pivot Moment: Responding to US Additional 25% Tariffs

On August 27, 2025, the Trump administration’s additional 25% US tariff on India became operational, targeting Indian exports worth $60.2 billion.

Effective August 27, 2025, the Trump administration imposed an additional ad valorem (meaning based on the value of product) 25% tariff on Indian goods, citing India’s purchase of Russian oil. This measure, combined with existing tariffs, has created a cumulative US tariff burden of 50% on most affected Indian exports, altering the landscape of foreign trade between the nations.

The decision represents more than an economic policy dynamic; it signals an era of geoeconomic friction that is compelling India to reassess its trade strategies and accelerate domestic reform initiatives. While the impact appears severe, this external pressure is catalyzing India’s vision of Aatmanirbhar bharat and economic self-reliance.

Table of Contents

Understanding the Tariff Structure

The current tariff regime consists of a structure that has escalated duties to levels of 50%. The 25% additional tariff supplements a pre-existing 25% “reciprocal” tariff implemented in August 2025, creating a total burden of 50% on most Indian exports to the United States.

These measures apply across sectors, though certain industries including pharmaceuticals, electronics, and petroleum products have received exemptions. The tariffs target India’s labor-intensive export sectors, which form the backbone of regional economies and employ millions of workers across the country.

Economic Implications for India

India’s export sectors face significant challenges as new U.S. tariffs will impact 66% of the country’s total exports to the US valued at $86.5 billion. A flagship report from the Global Trade Research Initiative (GTRI) shows that this includes $60.2 billion worth of goods that will be subject to the additional tariffs starting August 27.

This is expected to cause an overall drop in merchandise exports to the US by 40-45% in fiscal year 2025-26, with severely affected sectors potentially experiencing volume collapses of up to 70%. According to Global Trade Research Initiative (GTRI) analysis, the sectors to be majorly impacted are textiles and apparel Industry, Gems and jewellery, marine products and aquaculture, agriculture, organic chemicals among others.

Micro, Small, and Medium Enterprises (MSMEs), which account for roughly 45% of India’s total exports and dominate affected labor-intensive sectors with a 70% share, face disproportionate impact. These enterprises operate on thin margins and lack the financial flexibility to absorb increased costs, making them particularly vulnerable to the US tariff shock.

The broader economic impact could result in a reduction of 0.9 percentage points from India’s nominal GDP growth, representing a potential economic contraction of $7-25 billion. However, these short-term challenges must be viewed against India’s robust domestic fundamentals, with over 60% of GDP driven by internal consumption

Strategic Response: Embracing Self-Reliance

Non-Retaliatory Approach

India’s response to the US tariff imposition has been notably measured and strategic. Rather than engaging in retaliatory measures, the government has chosen to focus on building domestic resilience and diversifying trade relationships. This approach reflects confidence in India’s macroeconomic stability and its commitment to long-term strategic autonomy.

Aatmanirbhar Bharat Acceleration

The external pressure has provided powerful justification for accelerating the Aatmanirbhar Bharat initiative. This self-reliance vision encompasses not just import substitution but the creation of globally competitive domestic industries capable of serving both internal and international markets.

The government is leveraging this crisis to push through structural reforms, including comprehensive GST simplification and enhanced support for domestic manufacturing. These initiatives aim to stimulate internal demand while reducing dependence on volatile external markets.

Export Promotion

There is a need for initiatives like reinstating the Interest Equalisation Scheme and introducing targeted credit lines for labour-intensive sectors such as shrimp, apparel, jewellery, handicrafts, and carpets to safeguard jobs and prevent mass layoffs.

In addition, a support package worth ₹25,000 crore under the Export Promotion Mission is proposed, structured around two flagship schemes:

Niryat Protsahan: Focused on providing affordable credit and bridging liquidity gaps for exporters, with an allocation of over ₹10,000 crore for interest equalisation support.
Niryat Disha: Designed to enhance export competitiveness through better quality compliance, overseas market development, and logistics enhancement, with a proposed allocation exceeding ₹14,500 crore.

Strategic Swadeshi Mantra

In response to these challenges, the Indian government is pushing a ‘Swadeshi’ mantra, with the Prime Minister of India calling on Indians to be “vocal for local” and buy Indian goods. This emphasis on swadeshi principles represents a strategic pivot towards domestic consumption and self-reliance as a buffer against external economic pressures.

The tariffs have given renewed momentum to the swadeshi call, encouraging domestic consumption of Indian-made goods. This ideological move towards self-reliance is being translated into practical policy measures that promote local manufacturing and reduce import dependence.

The Make in India initiative is gaining fresh impetus as businesses seek to establish domestic production capabilities to serve both local and export markets. This transformation from an import-dependent to a manufacturing-focused economy represents a fundamental shift in India’s economic philosophy.

Trade Diversification Strategy

Exploring New Markets

India is actively pursuing trade diversification through new agreements, most notably the India–UK Comprehensive Economic and Trade Agreement (CETA), alongside advanced negotiations with the European Union.

At the same time, following the recent India–China summit, the country is seeking to unlock vast untapped export potential with China estimated at $161 billion. This is nearly ten times the current export levels through renewed trade and connectivity initiatives.

This strategy marks a shift from primary and resource-based exports toward medium- and high-tech sectors, positioning India for more sustainable and value-added foreign trade relationships.

To accelerate this transition, India should launch sector-specific trade missions and establish bonded manufacturing zones as well as “India+1” export hubs in regions like the UAE, Mexico, and Africa, helping bypass high U.S. tariffs. MSMEs can strengthen their presence through export consortia, while larger firms may benefit from joint ventures in FTA-partner countries.

Finally, greater investment in e-commerce platforms and sustainability certifications will not only reduce dependence on the U.S. market but also drive India’s growth from volume-driven to value-driven exports.

Building Resilient Supply Chains

The recent developments have underscored the risks of over-dependence on a single market. In response, India is focusing on creating multiple trade corridors and building resilient supply chains capable of withstanding both geopolitical pressures and economic disruptions.

To achieve this, the country must strengthen domestic competitiveness through dedicated technology upgradation funds, improved infrastructure such as coastal cold-chain facilities and integrated textile parks, and streamlined regulatory processes.

Conclusion

The implementation of the US tariff on India marks a defining moment in bilateral trade relations, presenting short-term challenges particularly for labor-intensive sectors and MSMEs. However, in the long-term, this external pressure is catalyzing India’s transformation towards greater self-reliance and economic resilience.

The government’s measured response, focusing on domestic reform acceleration rather than retaliation, reflects a mature approach to economic statecraft. The renewed emphasis on Aatmanirbhar Bharat, the swadeshi movement, and Make in India initiatives demonstrates how external challenges can become catalysts for internal strengthening.

While the tariffs represent a setback to US-India trade relations, the transformation of this crisis into an opportunity for structural reform exemplifies India’s capacity for adaptive resilience in an increasingly complex global economic environment.