India’s push to stimulate domestic consumption is helping cushion the impact of steep U.S. tariffs and giving Prime Minister Narendra Modi room to stand firm in trade negotiations with Washington.
On a recent Sunday in New Delhi, 22-year-old engineering student Shrey Dixit drove home a khaki-green, Indian-made Hyundai SUV—his family’s second car after nearly a decade. The purchase became feasible after the government sharply cut sales taxes in September, reducing the price by more than $1,000.
“I am very happy we could get the car we wanted at a reduced price,” Dixit said, noting that his father and uncle jointly financed the purchase.
The moment underscores a broader strategy. Despite President Donald Trump imposing tariffs of up to 50% on Indian goods in 2025—among the highest levied on U.S. trading partners—India’s consumer-led economy has shown resilience. Household consumption accounts for roughly three-fifths of India’s GDP, making the country less dependent on exports than China and less vulnerable to U.S. pressure than allies such as Japan and South Korea.
That domestic buffer has allowed New Delhi to resist U.S. demands to open sensitive sectors, including dairy and ethanol. Many of India’s highest tariffs are designed to protect agriculture, which supports more than 250 million people. Commerce and Industry Minister Piyush Goyal reiterated the government’s position last month, saying India would not liberalize its dairy market.
Trump first imposed 25% tariffs on India in August to address the U.S. trade deficit, followed by another 25% targeting India’s purchases of discounted Russian oil. Anticipating trade pressure, New Delhi had already moved to boost spending: income tax exemptions were expanded for lower earners, interest rates were cut multiple times, and Modi repeatedly urged citizens to “buy Indian,” particularly during last year’s Diwali shopping season.
The approach has yielded results. India’s economy grew 8.2% year-on-year in the July–September quarter, beating expectations. The central bank credited strong consumer demand, government spending and favorable oil import prices.
While sectors heavily exposed to the U.S.—India’s largest export market—have felt strain, economists say the broader economy remains stable. “Overall, it’s largely business as usual,” said Biswajit Dhar, an independent trade economist, pointing to India’s push into new markets and a weaker rupee that has supported exports.
India’s trade surplus with the U.S. has continued to widen, reaching $47 billion by September for the calendar year, according to U.S. data—already surpassing the total for 2024. Growth has been driven in part by electronics exports, notably Apple iPhones assembled in India, which benefited from lower tariffs than China-made devices for much of 2025.
Although exports to the U.S. dipped after the tariffs took effect, shipments have been redirected elsewhere. Imports of Russian oil have so far remained steady, though new U.S. sanctions on major Russian producers could lead to a decline.
Still, questions remain over how much India’s consumers can sustain growth, with per capita income at about $2,700 a year. Analysts continue to watch indicators such as motor scooter sales—often seen as a barometer of entry-level consumption—which have recovered slowly since the pandemic.
For now, however, India’s consumer-driven momentum is helping New Delhi weather global trade headwinds and negotiate from a position of relative strength. (Source: WSJ)
