The Prime Minister of India has called upon citizens to buy more Indian-made products, a statement first made at a political rally in Varanasi. But how effective can this strategy be? And could it conflict with the global economic order?
US Tariffs and the Global Trade Paradigm
When the world’s largest economy, the United States, imposes import tariffs on goods from multiple countries, it con-
tradicts the very principles of free international trade. The motivation behind this policy, particularly under former US President Donald Trump, was to revive America’s low- to medium-technology manufacturing base—sectors that declined significantly during the era of globalization starting in the late 1980s.
However, many economists argue that tariffs are not the right way to restore US manufacturing. Trump defended his policy by claiming that while other economies have benefited from the openness of the US market, they, in turn, erected trade barriers to keep out American goods.
Impact on the Indian Economy
A 25% import tariff by the US on Indian goods would significantly hurt India’s exports. India currently enjoys a merchandise trade surplus with the US—$41.18 billion in FY25—which would have likely grown under normal circumstances. The US is now targeting both Indian imports and exports, including by pressuring India to reduce its purchase of Russian oil in favor of American crude. This represents not only a tariff barrier but also a non-tariff barrier affecting India’s energy imports.
To understand the potential impact, economists use the concept of import tariff elasticity of exports, which measures the percentage drop in exports for every 1% increase in tariffs. Assuming an elasticity of -1 (a 1% tariff hike leads to a 1% drop in exports), a 25% tariff would reduce Indian exports to the US by 25%—a severe blow.
C. Rangarajan and N. R. Bhanumurthy (The Hindu, 9 August) estimated that such a scenario would widen India’s trade deficit by about 0.56% of GDP to 7.84%, reducing real GDP growth from 6.5% to 5.9%. More worrying, they argue, is the likely increase in India’s Current Account Deficit (CAD), projected to rise from 0.6% to 1.15% of GDP. While ongoing developments in FY26 may slightly mitigate these effects, the overall picture remains concerning.
Is a ‘Swadeshi’ Approach Viable Today?
The Indian government is considering three strategies to respond to these challenges:
The third approach inevitably draws parallels with the historic Swadeshi Movement of 1905, which emerged in Bengal in protest against the partition of the province by the British colonial administration. At that time, millions boycotted British goods, opting for indigenous alternatives despite inferior quality and higher prices. The movement was fueled by anti-colonial sentiment and a strong drive for independence.
Today, however, the context is vastly different. Globalization dominates public and corporate preferences, foreign brands enjoy immense popularity, and public trust in political leadership is waning. In such an environment, rekindling widespread patriotic enthusiasm for domestic products is far more challenging.
Economists like Jayati Ghosh argue that the real solution lies in strengthening India’s domestic economy by raising the purchasing power of ordinary citizens. This requires robust job creation—especially in rural areas, agriculture, micro and small industries, and other unorganized sectors. Only with a stronger domestic economic foundation can India effectively navigate external shocks like US tariffs.
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