India’s economy is showing remarkable resilience at a time of mounting external challenges, with punitive tariffs from the US failing to derail its growth momentum.
Despite Washington’s doubling of duties on Indian goods, the country remains the world’s fastest-growing major economy, with GDP projected to expand by 6.5 per cent in FY26. The latest data reinforce the picture of an economy that has not only absorbed external shocks but continues to consolidate its long-term growth trajectory.
The tariff blow has been significant in trade terms. August exports to the US fell to $6.7 billion, down 16.3 per cent from July and marking the steepest monthly fall of 2025, according to think tank GTRI. The sharp contraction followed earlier declines of 3.6 per cent in July and 5.7 per cent in June as the impact of 50 per cent tariffs began to weigh on competitiveness.
Economists argue that these setbacks have not yet dented India’s overall growth narrative. GDP for Q1 FY26 expanded 7.8 per cent, a five-quarter high and well ahead of most forecasts, following 7.4 per cent growth in the previous quarter. This performance came despite global market volatility and directly contradicts US President Donald Trump’s controversial labelling of India as a “dead economy.”
India’s inherent strengths are cushioning the impact of tariff headwinds. Strong domestic consumption, which accounts for nearly 60 per cent of GDP, remains the backbone of growth, while services and manufacturing continue to expand. The government’s push on infrastructure and reforms has further entrenched these buffers.
According to S&P Global, India’s long-term trajectory remains intact, with reforms in taxation, insolvency, and digital systems providing a competitive edge over advanced economies struggling with sluggish growth.
The Goods and Services Tax (GST) overhaul has been particularly instrumental. Finance Minister Nirmala Sitharaman noted this week that reforms to the tax structure have left an additional Rs2 trillion in the hands of citizens, fueling demand. Items in the 12 per cent GST bracket have largely shifted to 5 per cent, and 90 per cent of products once under the 28 per cent slab now fall into the 18 per cent range. GST collections have climbed to Rs22.08 trillion in 2025, up sharply since its launch, with taxpayers increasing to 15.1 million from 6.5 million. These measures, Sitharaman argued, will deliver benefits many times greater than targeted incentives for industries.
Even as tariffs cut into export volumes, India is widening its network of global partnerships to keep external engagement strong. The Comprehensive Economic Partnership Agreement (Cepa) with the UAE has already boosted bilateral non-oil trade, which crossed $38 billion in H1 2025, and is expected to create new openings in manufacturing, services, and investments.
With the UAE serving as a vital hub for India’s re-exports and financial linkages, Cepa provides a ready platform to cushion the blow of lost competitiveness in the US market. At the same time, India’s deepening engagement with Brics — now expanded to include major oil producers — is giving New Delhi alternative channels to sustain trade, attract investment, and reinforce energy security. “In an era of tariff wars, such plurilateral and regional alignments are proving critical shock absorbers, ensuring that India is not overly dependent on any single trade partner,” noted Sunil Ambalavelil, a Dubai-based business and legal consultant.
Parallel to these diplomatic buffers, India is nurturing new growth drivers. Shipbuilding is emerging as a strategic priority, with ambitions to lift India into the top five globally by 2047 from its current less than 1 per cent share. Efforts to localise the nuclear value chain by tapping into vast thorium reserves aim to build domestic capacity and advance technology transfer.
The digital economy is also transforming at breakneck speed, drawing heavy investment into data centres and positioning India to become the second-largest market for data centre power demand in Asia-Pacific within two years, surpassing Japan and Australia.
Private credit markets are expanding rapidly, filling the financing gaps left by traditional lenders and aided by a stronger insolvency framework. Together, these shifts reflect a more diversified and resilient economic structure, less vulnerable to sudden external shocks.
The government, meanwhile, is planning to expand its capital expenditure beyond the record Rs11.21 trillion budgeted for FY26, with railways, highways, ports, and shipbuilding as key priorities. Such spending is intended not only to boost demand but also to anchor long-term productivity gains.
India’s resilience also rests on deep-seated financial buffers. Gurmeet Chadha, CIO at Complete Circle, drew attention this week to the country’s staggering gold reserves — nearly 32,000 tonnes across households, the Reserve Bank of India, and temples. Valued at about $3.5 trillion, these holdings underscore the wealth embedded in the economy. “We are a dead economy?” Chadha wrote in a pointed rebuttal to Trump’s remarks, arguing that India’s gold obsession remains an underappreciated pillar of strength.
External observers agree that India’s ability to withstand global shocks is not new. S&P Global noted that while crises have often caused short-term disruptions, they have not derailed India’s growth path. Instead, reforms, process improvements, and infrastructure-led expansion have allowed the country to enhance its growth advantage over developed economies. With a focus on aligning centre, state, and bureaucratic processes, analysts argue India can further unlock efficiency and attract greater foreign capital.
The resilience story comes at a critical juncture. US tariffs have undeniably inflicted pain on exporters, but India’s diversified growth engines — from consumer spending to services exports, infrastructure investment, and digital expansion — are ensuring that the broader economy stays on course.
Supported by strategic trade partnerships such as CEPA with the UAE, greater integration with BRICS, and a strong reform push at home, India is proving that it can thrive in a turbulent world. The contrast between the “dead economy” label and the reality of 7.8 per cent GDP growth could not be starker, analysts argue.
