The Tariff Tango: India’s Opportunity in Disguise?

A fresh wave of uncertainty is washing over global markets. The US’s intensified focus on reciprocal tariffs, now encompassing a vast array of trading partners, has reignited investor anxieties. Markets are jittery, headlines scream caution, and a global slowdown looms. Yet, amidst this turmoil, India might find itself uniquely positioned, not through strategic manoeuvring, but by the very nature of its historically domestic-centric economic model.

Unlike export-driven Asian counterparts, India has cultivated an inward-focused economy. Exports constitute 21% of India’s GDP, compared to Vietnam’s 87%, Malaysia’s 68%, and South Korea’s 44%. India’s growth has been powered by domestic consumption, a factor that is often criticised for overlooking trade opportunities. Now, this detachment could act as a significant tailwind.

In an environment where export-dependent economies decelerate, nations with robust internal demand maintain momentum. India’s services sector grows above 6% annually. GST collections reached Rs 1.96 trillion in March 2025, and inflation is projected at 4% for FY26 by the RBI. While the world grapples with adapting to shifting trade dynamics, India possesses the breathing room to maintain its focus on long-term internal growth. While not immune to global headwinds, India’s macroeconomic stability provides a solid base to navigate challenges.

The redrawing of global trade relationships presents India with a distinctive opportunity to strategically recalibrate its approach. Its vast domestic market, poised to become the world’s third-largest by 2026, is an inherent advantage. However, it is the implementation of targeted reforms that will determine whether this moment becomes a true turning point. Ongoing efforts to simplify customs procedures and the recent reduction of import duties on select electronic components offer tangible examples of progress. Actively pursuing and expediting Free Trade Agreements with key blocs like the EU and the UK will be crucial in strengthening India’s integration into global supply chains, particularly for sectors seeking diversification away from heavily tariffed regions.

This evolving landscape also creates a significant opening for India’s small and medium-sized enterprises (SMEs). With appropriate policy support, labour-intensive industries such as textiles, toys, and agro-processing have the potential to absorb global demand shifting away from other major players. As India takes decisive steps to support these sectors, it can emerge from this global turbulence with a more resilient and balanced economic structure, potentially unlocking significant growth in manufacturing.

Every global disruption reshapes the competitive landscape. Historically, India’s higher tariffs and intricate trade systems were often perceived as impediments. Yet today, these very characteristics mean our economy carries less exposure to the immediate shocks reverberating through globally intertwined economies. Coupled with a steady macro backdrop – stable inflation, improving tax revenues, and resilient domestic consumption – the underlying fundamentals appear robust.

This is not a call for complacency. To fully capitalise on this unique juncture, India must strategically open up on its own terms. This includes a pragmatic revisiting of trade imbalances, implementing measures to protect against dumping, and aligning regulatory frameworks to attract sustained long-term investment. By taking the right calibrated steps, India can position itself not merely as a safe harbour but as an increasingly competitive force in the next global economic cycle.

For investors, this environment underscores the need to stay anchored in fundamentals. A diversified portfolio capturing India’s domestic growth potential, while resisting tariff-driven headlines, remains a sound path for navigating this “tariff tango.”

Disclaimer: This article is not part of the Outlook Money editorial feature. The views expressed are personal and do not necessarily reflect those of Outlook Money.

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Disclaimer: The Views are Personal and not a part of the Outlook Money Editorial Feature