Donald Trump’s 50% tariff on India kicks in as PM Modi urges self-reliance

Authors: Nikhil Inamdar

Publisher:

BBC

Published: 8/27/2025

Language:English

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Aura Windfall

Good morning norristong_x, and welcome. I'm Aura Windfall, and this is Goose Pod, just for you. Today is Friday, August 29th. It’s a joy to be here, and I'm joined by my brilliant co-host to unpack a major global shift.

Mask

I'm Mask. We're diving into a high-stakes economic battle today: Donald Trump’s aggressive 50% tariff on India has officially kicked in, just as Prime Minister Modi is making a powerful push for national self-reliance. This is a collision of giants.

Aura Windfall

Let's get started. It's a situation that truly speaks to the heart of national identity and economic pressure. On one hand, you have this immense external force, a 50% tariff. What I know for sure is that numbers like that aren't just statistics; they represent livelihoods.

Mask

Exactly. This isn't a subtle diplomatic maneuver. It's a sledgehammer. Trump’s executive order added an extra 25% penalty on top of existing tariffs, primarily targeting India for its purchase of Russian oil and weapons. It’s a direct punishment, making India one of the highest-tariff targets in the world.

Aura Windfall

And in response, Prime Minister Modi stands on the ramparts of the Red Fort, not with a message of despair, but with a rallying cry. He’s urging his people to embrace "Swadeshi" or "Made in India." It’s a call to find strength from within, which is such a powerful message.

Mask

It's a classic counter-move. When external pressure mounts, you turn inward and consolidate your domestic power. Modi’s telling shopkeepers, "Don't sell foreign goods." He's trying to weaponize national pride to build an economic fortress. It's a bold, high-risk, high-reward strategy. He’s essentially trying to pivot the entire consumer economy.

Aura Windfall

He said, "We should become self-reliant - not out of desperation, but out of pride." That really reframes the narrative, doesn't it? It's not about being a victim of global politics; it's about taking control of your own destiny. It’s an incredibly inspiring way to look at a crisis.

Mask

Inspiration is one thing, execution is another. The reality is that the share of manufacturing in India's GDP has been stuck at 15% for years. Modi's "Make in India" initiative isn't new. The question is whether this external shock from the US is the catalyst needed to finally make it work.

Aura Windfall

And he’s pairing that call for pride with a tangible promise, a "Diwali gift," as he calls it. A massive tax bonanza for small businesses and the common person. It seems he understands that you can't just ask for a spiritual shift; you have to provide practical support.

Mask

That’s the pragmatic part. The tariffs are a direct blow to exporters, so you have to soften it by boosting domestic consumption. If people can't sell their goods to America, the government needs to make it easier for them to sell to each other. It’s about rerouting the flow of capital.

Aura Windfall

It's a fascinating duality, isn't it? The global stage is full of conflict and what Modi calls "economic selfishness," while internally, he's trying to foster a sense of unity and shared purpose. He’s trying to build a lifeboat while the storm is raging around them.

Mask

It's a massive gamble. Trump is betting that economic pain will force India to change its foreign policy regarding Russia. Modi is betting that he can rally his nation, overhaul his tax system, and re-engineer his economy faster than the tariffs can cripple it. This is economic warfare.

Aura Windfall

To truly understand Modi's strategy, we have to look at the main tool he's using to fight back. It’s not just about speeches; it's about a fundamental change to India's economic structure. He's overhauling the Goods and Services Tax, or GST. What does that mean for the average person?

Mask

Think of the GST as India's version of a national sales tax. Before it was introduced on July 1, 2017, the country had a ridiculously complex maze of different indirect taxes. Each state had its own rates, and there were central taxes on top. It was chaotic and inefficient.

Aura Windfall

So it sounds like a move toward clarity and unity. The philosophy was "one nation, one tax." What a beautiful and simple idea. It’s about creating a shared economic language across the entire country, removing the friction and confusion that was holding businesses back. It’s a form of economic empowerment.

Mask

In theory, yes. It was a historic and necessary reform. It replaced a dozen different taxes like excise duty, service tax, and state VAT. But the execution was flawed. The system they launched had too many different tax slabs, too many exemptions. It was still incredibly complicated for the average business owner to navigate.

Aura Windfall

So the spirit of the law was pure, but the application was messy. I can imagine the frustration for a small shop owner trying to figure all that out. It’s like being given a map where all the roads are drawn, but none of them are labeled. You know where you want to go, but it's hard to find the path.

Mask

Exactly. And that's what Modi is targeting now. He's proposing a simplified, two-tier GST system. This is the "massive tax bonanza" he's talking about. By cutting the rates and simplifying the structure, the government immediately puts more money into the hands of consumers and businesses. It’s a direct injection of cash into the economy.

Aura Windfall

It’s a powerful act of giving back, especially when people are feeling the squeeze from global pressures. It sends a message: we trust you to spend, to invest, to build. It’s fostering that spirit of self-reliance from the ground up, by giving people the resources to rely on themselves.

Mask

It’s not just trust; it’s a calculated economic stimulus. Jeffries, the brokerage house, estimated this GST reform could be worth around $20 billion. Combined with a $12 billion income tax giveaway announced earlier, that's a significant push to get people spending. Consumption makes up nearly 60% of India's GDP, so it's the engine.

Aura Windfall

And this is where we see the human element again. This isn't just about abstract numbers. This affects demand for scooters, small cars, clothes, even the cement that builds a family's home. These reforms touch the very fabric of daily life and aspiration, especially around a hopeful time like Diwali.

Mask

Correct. And the timing is critical. While rural spending has been strong thanks to good harvests, urban demand has been weak. Lower wages, job cuts in the IT sector post-pandemic... people in the cities have been hesitant to spend. This fiscal stimulus is designed to counteract that. It’s a direct intervention.

Aura Windfall

What I find so interesting is how one action creates a ripple effect of positivity. Analysts believe these tax cuts could also encourage the central bank to lower interest rates even further. So, it becomes easier to borrow, to build, to dream bigger. It’s a cascade of hope.

Mask

It's a cascade of incentives. Lower taxes mean more spending. Lower interest rates mean more lending. Throw in a salary boost for half a million government employees, and you have a multi-pronged strategy to keep the economic engine running despite the headwind from Trump's tariffs. It's an aggressive, domestic-focused growth plan.

Aura Windfall

And at the heart of this is a profound conflict of visions. You have Donald Trump’s "America First" approach clashing directly with Narendra Modi’s "Make in India." Both are powerful, nationalistic calls to action, but they are on a collision course. It’s a battle of two very strong wills.

Mask

It's a souring of a relationship that was once very strong. The core of the conflict is Trump's accusation that India is indirectly funding Russia's war in Ukraine by buying discounted Russian oil. The tariffs are the weapon he's using to force India to change its stance. It's pure power politics.

Aura Windfall

So from the US perspective, this is a matter of geopolitical alignment and principle. They see an ally, a partner in the Indo-Pacific, acting against their strategic interests. And they're using economic leverage to try and pull that ally back into line. It's a painful, public disagreement.

Mask

But many experts see it as a massive own goal for the US. India is a critical counterweight to China in the region. Antagonizing one of your strongest partners with a 50% tariff, which is akin to a trade sanction, risks long-term strategic damage for a short-term policy dispute. It's a disruptive, almost reckless move.

Aura Windfall

And India's response has been one of resilience, of standing firm. The sentiment seems to be, as one headline put it, that India is "not bending to Trump's tariff tantrums." Modi is vowing to protect his farmers and industries, framing this as a test of national strength.

Mask

He has no choice. He can't be seen as bowing to US pressure. So he's doubling down on the self-reliance narrative, talking about manufacturing everything from fertilizers to jet engines. It's an ambitious vision born from conflict. The trade negotiations have been called off; the lines have been drawn.

Aura Windfall

What does this breakdown in communication mean? When trade negotiations are called off, it feels like both sides are retreating to their corners. It closes the door on finding a middle ground, on understanding the other's perspective. It’s a path that leads to more conflict, not less.

Mask

It means the economic war is on. There's no more talking for now. The US has acted, and India is reacting. Modi's strategy is to endure the pressure, believing the US is also profiting from the situation in other ways and can't afford to completely sever ties. It's a high-stakes standoff.

Aura Windfall

It’s heartbreaking, in a way. Just a few months ago, a scenario like this would have been unthinkable between two friendly democracies. It shows how quickly relationships can fracture when "economic selfishness," as Modi termed it, becomes the driving force in global politics. It's a powerful lesson in impermanence.

Aura Windfall

Let's talk about the real-world impact of this. What does a 50% tariff truly mean for the people on the ground? We're talking about industries that supply everything from clothes to diamonds to shrimp to American consumers. The ripple effects must be immense.

Mask

The impact is brutal and immediate. The Federation of Indian Export Organisations said this is a "severe setback," affecting nearly 55% of all their shipments to the US. That's a catastrophic number. Their access to their largest export market is being throttled overnight. It’s an economic chokehold.

Aura Windfall

And what I know for sure is that behind that 55% figure are millions of livelihoods. We're talking about textile workers, diamond cutters, fishermen. This isn't a high-level political game to them; this is about whether they can feed their families. It's a direct threat to their survival.

Mask

It puts them at a massive competitive disadvantage. An economist at Emkay Global stated that with these "obnoxious tariff rates," trade between the two nations would be "practically dead." Indian exporters are suddenly 30-35% more expensive than their rivals in Vietnam, Bangladesh, or Japan. They are being priced out of the market.

Aura Windfall

So for an American company choosing where to source their products, the decision becomes purely financial. The long-standing relationships, the quality of Indian craftsmanship—all of that gets overshadowed by this sudden, punishing cost. It feels incredibly unfair to the businesses that built those partnerships.

Mask

It is. And the uncertainty is killer. Indian exporters are already seeing a significant decrease in US orders because the trade talks collapsed and the tariffs were confirmed. Businesses can't plan. They can't invest. The entire supply chain is disrupted, and it further frays a US-India relationship that should be a cornerstone of stability.

Aura Windfall

And yet, there’s a strange paradox. A US embassy official mentioned that America could be a major energy supplier to India and wants to help its economic growth. How can one part of the government be extending a hand while another is delivering a blow? It’s a confusing message.

Mask

That's international relations. It's never monolithic. Different interests are always at play. But the overarching action, the 50% tariff, speaks louder than any diplomatic statement. It's a clear signal of punishment that drowns out any offers of collaboration. The damage to trust is significant.

Aura Windfall

So, where do we go from here? It feels like a dark tunnel, but there must be a light at the end. What does the path forward look like for India's economy? Is this internal pivot, this focus on tax reform and self-reliance, a sustainable long-term solution?

Mask

The focus is on domestic stimulus. The tax cuts announced are designed to be non-inflationary and will help growth. The central bank is forecasting about 6.7% growth for the next fiscal year, which is still world-leading, but it’s below the 8% economists say is needed to become a developed nation by 2047.

Aura Windfall

That 2047 goal is such a powerful, aspirational vision. It’s about more than just numbers; it's about a promise to future generations. So, these reforms are not just a reaction to a crisis, but a crucial step towards that long-term dream. It’s about building a foundation that can withstand any storm.

Mask

Precisely. The goal is to make the domestic economy so robust that it's less vulnerable to external shocks like this. By simplifying tax structures and promoting digital administration, like the Reagan reforms did in the US, they hope to increase voluntary compliance, reduce evasion, and create a healthier, more resilient economic base.

Aura Windfall

So, what we're seeing is a story of resilience. A nation facing immense external pressure, turning inward not in defeat, but to find a deeper source of strength. It's a powerful reminder that even in conflict, there is an opportunity to rebuild and redefine yourself from the inside out.

Mask

That's the end of today's discussion. This is a high-stakes economic conflict with global implications, and we'll be watching closely. Thank you for listening to Goose Pod. See you tomorrow.

## Summary of News: Donald Trump's 50% Tariff on India and India's Response This news report from **BBC News India**, authored by **Nikhil Inamdar**, details the significant economic impact of Donald Trump's **50% tariffs on India**, which came into effect on **August 27th**. The tariffs, an escalation from a previous 25% penalty related to India's purchases of Russian oil and weapons, have placed India among the highest tariff-paying countries globally. This development is expected to negatively affect India's exports and economic growth, particularly as the US was a major trading partner. ### Key Findings and Conclusions: * **US Tariffs Impact:** The imposition of a **50% tariff** by the US on India is a severe blow to India's export-driven industries, affecting sectors like clothing, diamonds, and shrimp. * **Government Response:** Indian Prime Minister Narendra Modi's government is in "firefighting mode," responding with a strategy focused on **self-reliance** and boosting domestic consumption. * **"Made in India" Campaign:** Modi is urging businesses to display "Swadeshi" or "Made in India" boards, promoting a shift towards domestic production and consumption. * **Fiscal Stimulus:** The government is implementing a "massive tax bonanza" to support the common man and small businesses. This includes a **$12 billion income tax giveaway** announced earlier in the year and a proposed overhaul of the Goods and Services Tax (GST). * **GST Reform:** A simplification of the GST into a **two-tier system** is planned. Analysts from Jeffries estimate that these GST rate reforms, combined with income tax cuts (effective from April 2025), could be worth **US$20 billion (£14.7 billion)** and provide a significant boost to consumption. * **Economic Projections:** Morgan Stanley predicts that these tax cuts will stimulate consumption, push GDP growth, and reduce inflation, which is crucial amidst global geopolitical tensions and adverse tariff developments. * **Sectoral Benefits:** Consumer-facing sectors like scooters, small cars, garments, and construction materials are expected to benefit from the tax breaks, especially with demand typically rising around Diwali. * **Monetary Policy:** The tax handouts may increase the likelihood of further interest rate reductions by India's central bank, which has already cut rates by **1%** in recent months, potentially spurring lending. * **Sovereign Rating Upgrade:** Despite trade uncertainties, India received a rare sovereign rating upgrade from S&P Global after **18 years**, which could lower borrowing costs and attract foreign investment. * **Growth Slowdown:** Despite these measures, India's growth prospects have slowed from **8%** seen in previous years, and its external challenges remain significant. * **Trade Negotiations Halted:** Trade negotiations between India and the US have been called off, intensifying the "war of words" over issues like energy purchases from Russia. ### Key Statistics and Metrics: * **US Tariff Rate:** **50%** * **Previous US Penalty:** **25%** (for purchases of Russian oil and weapons) * **India's Manufacturing Share of GDP:** Stagnating at **15%** * **Private Consumption's Contribution to GDP:** Nearly **60%** * **Estimated Value of GST Reforms:** **US$20 billion (£14.7 billion)** * **Central Bank Interest Rate Cuts:** **1%** in the past few months * **Government Employee Salary Increases:** Affecting approximately **half a million** employees early next year. * **Sovereign Rating Upgrade:** First in **18 years**. * **Previous Growth Levels:** **8%** ### Notable Risks or Concerns: * The **50% tariff** is described as akin to a sanction, a scenario previously considered unthinkable. * The **"Made in India"** initiative faces challenges due to the stagnation of manufacturing's share in GDP. * Urban demand has slowed due to lower wages and job cuts in sectors like IT post-pandemic. * India's external crisis shows no sign of abating, and trade negotiations have been suspended. ### Important Recommendations (Implicit): * The government's focus on domestic consumption and self-reliance is a direct response to external trade challenges. * Experts suggest that long-pending tax reforms, like the GST overhaul, are crucial to softening the blow of tariffs. ### Significant Trends or Changes: * A shift in US-India trade relations, with tariffs replacing what was once a strong partnership. * A renewed emphasis on economic self-reliance within India. * A proactive fiscal stimulus package aimed at bolstering domestic demand. ### Material Financial Data: * **$12 billion** income tax giveaway. * **US$20 billion (£14.7 billion)** estimated value of GST reforms. This summary provides a comprehensive overview of the news, highlighting the critical economic implications of the US tariffs and India's multi-faceted response.

Read original at BBC →

Bloomberg via Getty ImagesModi has urged small shop owners and businesses to put up "Made in India" boards outside their storesDonald Trump's steep 50% tariffs on India have kicked in, weeks after the US president issued an executive order hitting the Asian country with an additional 25% penalty over its purchases of Russian oil and weapons.

This makes India - one of the US's strongest partners in the Indo-Pacific - among the countries paying the highest tariffs in the world. This could deal a blow to exports and growth in the world's fifth largest economy, given that the US was, until recently, India's largest trading partner. The tariff setback has sent the Indian government into firefighting mode.

Earlier this month, Indian Prime Minister Narendra Modi made a promise. He said that a Diwali gift in the form of a "massive tax bonanza" was on its way for the common man and the millions of small businesses that power Asia's third largest economy.Wearing a bright saffron turban and addressing crowds of spectators from the ramparts of Delhi's Red Fort during Independence Day celebrations, Modi also made a rallying cry for self-reliance, urging small shop owners and businesses to put up boards of "Swadeshi" or "Made in India" outside their stores."

We should become self-reliant - not out of desperation, but out of pride," he said. "Economic selfishness is on the rise globally and we mustn't sit and cry about our difficulties, we must rise above and not allow others to hold us in their clutches."He has since repeated these comments in at least two other public addresses this week.

For many watching, this is clearly aimed at countering US President Donald Trump's brutal 50% tariff rate on India. This will disrupt millions of livelihoods across the country's export-driven industries that supply everything from clothes to diamonds and shrimp to American consumers.Amid the blow, Modi's message to his countrymen has been loud and clear - make in India and spend in India.

The former has proved increasingly difficult, with the share of manufacturing as part of India's gross domestic product (GDP) stagnating at 15% levels, despite his government rolling out subsidies and production incentives over the years. But spurring long-pending tax reforms that immediately put more money into the hands of people could help the government soften some of the blow, experts say.

And so, after a $12bn income tax giveaway announced in the budget earlier this year, Modi is now aiming for an overhaul of India's indirect tax architecture – a reduction and simplification of the goods & service tax (GST).AFP via Getty ImagesDonald Trump's 50% tariff rate on India comes into effect on 27 August GST, which was introduced eight years ago, replaced a maze of indirect taxes to reduce compliance and the cost of doing business.

But experts say it has too many thresholds and exemptions, making the system extremely complicated. They've repeatedly called for it to be revamped. Now, Modi has precisely promised that, with India's finance ministry putting out a proposal for a simplified two-tier GST system."Combined with the income tax cut in place from April 2025...

the GST rate reforms [likely worth US$20bn; £14.7bn] should together provide a meaningful push to consumption," analysts from Jeffries, a US brokerage house, said after the announcement.Private consumption is a mainstay of India's economy, contributing to nearly 60% of the country's GDP. While rural spending – supported by a bumper harvest – has remained strong, demand for goods and services in cities has continued to slow down due to lower wages and job cuts in major sectors like IT, post the pandemic.

Modi's "fiscal stimulus" or tax cuts should help ensure a consumption recovery, according to investment banking firm Morgan Stanley. It will push GDP up and drag inflation down."This is particularly crucial amid headwinds from ongoing global geopolitical tensions and adverse global tariff-related developments that might impair external demand," Morgan Stanley said.

Among the sectors most likely to benefit from the tax breaks are consumer-facing ones such as, scooters, small cars, garments and even things like cement that goes into making homes, where demand typically picks up pace around Diwali.While the specifics are unknown, most analysts estimate that the revenue loss on account of a lower GST would be offset by surplus levy collections and higher than budgeted dividends from India's central bank.

According to Swiss investment bank UBS, the GST cuts will also have a larger "multiplier effect" than the previous corporate and income tax cuts undertaken by Modi, as they "directly affect consumption at the point of purchase, potentially leading to higher consumer spending".AFP via Getty ImagesTariffs disrupt millions of livelihoods across the country's export-driven industries such as textilesModi's tax handouts could also increase the probability of a further interest rate reduction by India's central bank, which has already slashed rates by 1% in the past few months - something that is likely to spur more lending, according to analysts.

This, along with a boost in the salaries of some half a million government employees that kicks in early next year, will help India's economy retain its growth momentum, they say. India's stock markets have cheered these announcements. And despite the panic caused by trade uncertainties, earlier this month, India also got a rare sovereign rating upgrade from S&P Global, after a gap of 18 years.

A sovereign rating measures how risky it is to lend to a government or invest in a country. This is significant because it could lower the government's borrowing costs and improve foreign investment flows into the country.But even as Modi rushes through with long-delayed reforms, India's growth prospects have slowed significantly from the 8% levels seen a few years ago, and its external crisis shows no sign of ebbing.

The war of words between Delhi and Washington, especially over the latter's energy purchases from Russia, have only intensified and trade negotiations which were set to begin earlier this week, have been called off.Meanwhile, at 50%, the tariffs on India are akin to a sanction on trade between the world's biggest and fastest growing economies, say experts - a scenario that would have been unthinkable even just a few months ago.

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