India's Economic Engine Stutters Amid Intensifying Global Tariff Wars

By

 

India's economic ascent is facing a critical test. After registering an impressive 8.2% GDP growth in the fiscal year 2023–24, the Reserve Bank of India (RBI) has revised its projection for 2024–25 downward to 6.6%, a marked drop from the earlier estimate of 7.2%. Manufacturing growth has slowed to 2.2% in the third quarter of 2024, down sharply from 7% a year prior, while private investment has shown signs of stagnation. Though India continues to outperform most major economies, its recent loss of momentum, exacerbated by internal weaknesses and an increasingly volatile global trade environment, signals a decisive moment for its $4 trillion economy.


India's Position in the Global Economic Landscape

To understand India's trajectory, it is helpful to compare it with four other leading economies: Vietnam, the United States, China, and Ireland. Each exhibits distinct growth dynamics. With a projected GDP growth of 6.8% in 2025, Vietnam has emerged as a formidable competitor in the global trade arena. The World Bank attributes this sustained expansion to robust export performance in electronics, textiles, and footwear, with total exports reaching $378 billion in 2024, a 7.5% increase from the previous year. Vietnam continues to attract significant foreign direct investment (FDI), which rose by 15% to $23 billion in 2024, mainly due to multinational corporations seeking to escape the escalating U.S. and China trade conflict. With an average tariff rate of 5% and a highly efficient labour force, Vietnam offers structural advantages that India has struggled to replicate.


According to the OECD, the United States, the world's largest economy, anticipates a GDP growth rate of 2.2% in 2025, a deceleration from 2.8% in 2024. Consumer spending remains robust, with a $1.9 trillion surge in the fourth quarter of 2024, supported by technological productivity gains of 2.1% annually. However, the imposition of tariffs by President Trump in March 2025, 25% on imports from Canada and Mexico and 10% on Chinese goods, risks slowing economic momentum. The OECD projects that these tariffs could cost the U.S. economy $260 billion, trimming GDP growth by 0.7 percentage points by 2026.


China, despite facing structural headwinds, has managed to sustain moderate growth. The Chinese government's $500 billion stimulus package in 2024 has helped lift GDP growth to 4.8% in 2025, slightly above the previous year's 4.7%. Exports grew by 6.7%, aided by a 10% yuan depreciation since January 2024. However, China's $2 trillion property sector debt and industrial overcapacity pose ongoing risks. While India benefits from a younger workforce and a lower dependency on real estate, its pace of economic reform lags behind Beijing's interventionist strategies.


Ireland, the European Union's fastest-growing economy, is projected to expand by 3.5% in 2025, up from 2.8% in 2024. With a GDP of $590 billion, it has leveraged its competitive 12.5% corporate tax rate to attract $15 billion in FDI in 2024, predominantly from U.S. technology firms. Ireland's export sector, amounting to 130% of GDP, grew by 4.2%, benefiting from stable access to EU markets. In contrast, India's higher corporate tax rate of 25% and its more protectionist trade policies deter investors seeking a stable regulatory environment.


Despite outpacing the growth of the U.S., China, and Ireland, India's 6.4% expansion remains behind Vietnam's. Its 2.1% share of global merchandise trade (WTO, 2024) and declining manufacturing contribution (27.6% of GDP in 2023 compared with 32.3% in 2011) underscore its struggle to compete with export-driven economies such as Vietnam and Ireland.


Diagnosing India's Slowdown

India's economic deceleration stems from domestic challenges and external disruptions. Private consumption, which constitutes 58% of GDP, expanded by only 7.3% in 2024–25, down from 9% the previous year. Urban wage growth slowed to 4% from 6%, while rural economic distress remains pronounced, evident in a 5% decline in two-wheeler sales in the third quarter of 2024. Food inflation, recorded at 8% annually, has eroded purchasing power, with vegetable prices surging 28% year-on-year (India's Consumer Price Index, 2024).


Investment sentiment has also weakened. Gross fixed capital formation grew by a modest 5.4%, compared to 7.5% in the previous fiscal year. Private investment increased by only 6.4%, down from 9%, while net FDI inflows plummeted by 88% to $479 million between April and November 2024 (RBI). India’s average tariff rate of 17%, the highest in Asia (WTO, 2024), has deterred investment, while complex regulatory procedures burden businesses.


Externally, India faces an increasingly complex trade environment. Exports, which account for 22% of GDP, grew by only 1.2% in 2024, widening the trade deficit to $210.77 billion, an 11% increase from the previous year. The global economy is expected to expand by only 3.1% in 2025 (OECD), while the recent wave of U.S. tariffs threatens India's $87 billion trade relationship with the United States.


The Impact of Global Tariff Wars

The latest tariff measures introduced by the U.S. in March 2025 have set off a chain reaction in global trade. The OECD estimates that these policies will reduce global GDP growth by 0.3 percentage points by 2026 while pushing inflation up by 0.4 percentage points. For American consumers, this equates to an additional $3,000 in annual household costs (Tax Policy Center, 2025). Meanwhile, China's 6.7% export growth in 2024 masks a $50 billion decline in U.S.-bound shipments, which Beijing has attempted to counterbalance through currency devaluation.


While India is also a direct target of these tariffs, the consequences are already being felt. The country's IT sector, which derives 80% of its revenue from exports, and its $26 billion textile industry are bracing for weaker demand from the U.S. market. Nevertheless, India could seize the opportunity to absorb some of the $10 billion in FDI likely to be redirected from China by 2026. However, realising this potential will require aggressive trade liberalisation and infrastructure improvements. While the government has committed $133 billion in public capital expenditure for the 2024–25 fiscal year, private sector participation remains sluggish.


The Road Ahead

Amidst the headwinds, there are signs of resilience. Agricultural output rose 3.5% in the third quarter of 2024, while services exports increased 8%. The current account deficit narrowed to 1.2% of GDP ($11.2 billion) between July and September 2024. Indian Finance Minister maintains that the slowdown is cyclical and primarily influenced by election-related fiscal constraints. However, many analysts caution that without bold reforms, reducing tariffs to levels comparable with Vietnam's 5%, simplifying labour laws, and improving tax competitiveness, India risks settling into a lower growth trajectory of 6%, far from the 8% benchmark required to meet its long-term development ambitions.


As global trade dynamics shift, India faces a pivotal choice: embrace the competitive policies that have driven Vietnam's and Ireland's success or risk prolonged underperformance. Today's decisions will determine whether India can reclaim its position as the world's fastest-growing economy or will be forced to navigate an increasingly challenging global landscape with diminished momentum.

Location: India

Comments

Post a Comment

Popular posts from this blog

Indian Independence 15th August: Sixty Seven Years Journey

By
Image
Indian Independence proved a turning point for world order, after Ireland and India large number of countries became Independent,  Indian independence proved the last nail to the sinking colonial ship. After Independence, the Indian democracy is an outstanding example for democracies around the world. India is an ethnically most different country in the world, and today it is an example of “Unity in Diversity.” India is doing exceptionally well in empowering men and women of their civil and political rights and improving the lives of millions of Indians every year by bringing them out of poverty. Perhaps millions of Indians still live in poverty, and it is a country where rich and poor live side by side. Pre Independence Indian Economic Growth Well-known British economic historian Angus Maddison wrote in his book “Contours of the world economy” outlined India’s macro-economic history that India was the world's largest economy during the 1 AD and 1000 AD. Maddison wri...
Read more

Telephone Consumers in Ireland are Vulnerable for Cramming (Unauthorized, Misleading, or Deceptive Charges Placed on Your Telephone Bill)

By
Image
The consumer gets crammed when a dishonest company puts charges on their phone bill (landline or mobile phone) for services that were not wanted or authorized by the customer.   Cramming has been around for more than a decade—ever since phone companies were allowed to make extra money by billing for other companies. Until recently, the phenomenon had been mostly limited. These days this scam is a growing problem for phone customers in Ireland.  More alarmingly, a study in the United States of America found that only 1 in 20 cramming victims realize they’ve scammed. That’s because the crammers are clever. They know how to make their illegal fees easy to miss by consumers. They keep the amounts small and list them on the bill as something innocuous, such as monthly charge or service fee. People don’t see it, and if they do see it, they don’t pay attention. It is estimated that in Ireland it is amounting millions of Euro every Month. Recently I have found in my m...
Read more

Reasons of Present Indidian Economic Crises

By
Image
Today the Indian finance minister blamed Eurozone crises for India’s economic slowdown which is far from the truth, reasons for India’s financial mismanagement are more internal than external. Finance Minister Mr. Minister Pranab Mukherjee instead of taking responsibility for this terrible mess blaming the world for his inaction. Following are the real reasons for present Indian economic crises.   1.      Economic governance and supervision failure by the government and national agencies. 2.      High inflation. 3.      Lack of vision and outdated economic policies. 4.      India is a no more attractive place for FDI because of high operating cost, complicated corporate governance, lack of infrastructure, corruption and continued red-tapism. 5.      Current account deficit. 6.      Continued slow industrial growth. 7.      Populist policies are amounting unsustainab...
Read more