Trump Tariff on India: How Modi Govt Plans to Minimize GDP Impact – Donald Trump’s new 25% tariff on Indian imports takes effect, raising duties up to 50%. An EY report says India can limit GDP impact to just 0.1%, with growth on track to make India the world’s 2nd largest economy by 2038.
US President Donald Trump’s administration has officially imposed a 25% additional tariff on Indian imports, effective from August 7, 2025. This move has raised the overall duty on some shipments to as high as 50%, making it one of the steepest tariffs ever imposed by the US — bringing India on par with countries like Brazil and China.
Trump Tariff on India: How Modi Govt Plans to Minimize GDP Impact
The tariffs are part of Washington’s efforts to curb trade imbalances, but India is preparing strategies to minimize the economic fallout.
India’s Economic Resilience
According to EY’s Economy Watch (August 2025 edition), India remains one of the most dynamic economies among the world’s top five. Strong fundamentals, including high savings and investment rates, favorable demographics, and stable fiscal conditions, are helping the country withstand global headwinds.
Despite trade pressures and slowing global demand, India’s growth is largely driven by domestic consumption and an expanding digital and technology base, which provides insulation against external shocks like tariffs.
GDP Impact of Tariffs
The report highlights that if India adopts suitable countermeasures, the impact of Trump’s tariffs can be restricted to just 0.1% of GDP. This means India’s projected 6.5% growth rate for FY 2026 may see only a marginal decline of 10 basis points.
Purchasing Power Parity (PPP) and India’s Economic Strength
The concept of Purchasing Power Parity (PPP) compares the relative value of currencies by analyzing the cost of goods and services between two countries. Under PPP, India’s economy is already the third-largest in the world, with a GDP of $14.2 trillion in FY25, nearly 3.6 times higher than at market exchange rates.
The IMF projects that India’s GDP could reach $20.7 trillion by 2030 and $34.2 trillion by 2038, making it the second-largest economy globally under PPP.
Future Outlook
The EY report predicts that if India maintains its average growth of 6.5%, while the US grows at 2.1% annually, India could surpass the US economy (in PPP terms) by 2038. Moreover, by 2028, India is expected to overtake Germany to become the world’s third-largest economy at market exchange rates.
Despite tariff pressures, India’s growth trajectory remains strong, supported by domestic demand, digital transformation, and policy measures aimed at sustaining long-term economic resilience.
