Tariffs, reforms, and quiet trade deals shape India’s path beyond Trump-era protectionism
This is the first day of the year 2026. Every new year brings with it renewed hope and the belief that it will be kinder than the one gone by — offering a better life, broader prosperity, fewer conflicts and more durable peace. However, to understand the future, one must understand the past and plan the present. The most dominant global theme of 2025 was the economy.
The global economy became a casualty of American policies. Inward-focused US President Donald Trump reset global economic relations and tariffs became the most widely used policy tool in 2025. Considered a natural partner of the US to contain China, India lost its strategic utility in American policy calculations and became one of the most tariff-hit countries in the world, along with Brazil.
For the Indian economy, 2025 was nevertheless a remarkable year — one that displayed the resilience of the country and its people in standing up to a whimsical superpower. The year proved remarkable not only because India scraped through it with minimal bruises, but also because it continued to be the fastest-growing major economy in the world. It overtook Japan to become the world’s fourth-largest economy, after the United States, China and Germany.
The year gone by was not without its minuses. Indian exports to the US shrank after Trump imposed punitive tariffs of up to 50 per cent. Foreign capital inflows slowed, putting pressure on stock markets and the rupee. The Indian currency slid to a historic low of 90.74 per US dollar, though it later recouped some of its losses. Nevertheless, India fought back valiantly.
The government’s access to cheaper Russian oil helped keep inflation near historic lows and protected the poor from sharp price rises. It restructured income tax and Goods and Services Tax (GST) rates to improve tax compliance and boost domestic consumption. As a result, domestic spending surged during the festive season.
The Narendra Modi government also undertook several smaller policy tweaks that could hold greater promise — such as redefining “small companies” to include those with turnovers of up to Rs 100 crore, benefiting thousands of firms; implementing the long-awaited Direct Labour Code by merging 29 labour laws; allowing 100 per cent foreign investment in the insurance sector; and nudging states to improve the Ease of Doing Business.
In an effort to reduce its dependence on the US, India inked trade deals with New Zealand, Oman, and Britain, and operationalised free trade agreements with the European Free Trade Association. The country also opened up the nuclear power sector to private participation to meet rising energy demand.
These decisions may have escaped public attention because none qualified as a big-bang reform. However, they hold significant promise to power India’s economic growth in an increasingly insular world. Economic growth in the Trump era — marked by protectionist trade policies and the rapid rise of artificial intelligence — will not be easy, as the days of cost arbitrage are over. Industry and citizens alike must become globally competitive to win this race. The government has started well, and one hopes it will maintain the momentum in 2026 as well.
Wishing you all a happy New Year.
