India, the world’s most populous nation and a coveted market for global brands, has found itself at the center of economic turbulence as escalating US tariffs threaten to shake its growth trajectory and unsettle its longstanding alliance with Washington. On August 21, 2025, former US Ambassador to the United Nations Nikki Haley issued a stark warning to former President Donald Trump, cautioning that the imposition of steep tariffs could not only fracture the US-India alliance but also hand China a crucial competitive edge. This sentiment echoes across boardrooms and trading floors from Mumbai to New York, as both nations grapple with the implications of a rapidly evolving trade landscape.
According to reporting by Reuters, Indian companies have experienced the steepest earnings downgrades in Asia, with analysts slashing their forecasts as the threat of US tariffs looms large. Over the past two weeks alone, forward 12-month earnings estimates for India’s large and mid-cap firms have been cut by 1.2%, the sharpest drop among Asian markets. This comes on the heels of a lackluster earnings season, further extending a period of weakness among listed firms that began last year and has weighed heavily on India’s benchmark equity indexes.
While India’s economy remains largely domestically driven—firms in the Nifty 50 index derive only 9% of their revenue from the US—the specter of tariffs as high as 50% on Indian exports to the world’s largest economy presents a significant risk. According to analysis by MUFG, a sustained 50% tariff could shave a full percentage point off India’s GDP growth over time, with the most pronounced impact likely to be felt in employment-sensitive sectors such as textiles. For a country where millions depend on these industries for their livelihoods, the stakes could not be higher.
Prime Minister Narendra Modi has responded to the escalating trade conflict with Washington by announcing sweeping tax reforms aimed at boosting domestic consumption and cushioning the economy from external shocks. Standard Chartered economists estimate that these tax cuts could provide a 0.35 to 0.45 percentage point boost to India’s GDP growth in the fiscal year ending March 2027. Still, the challenge remains daunting.
Raisah Rasid, a global market strategist at J.P. Morgan Asset Management, captured the uncertainty facing investors: "It’s a little bit of an interesting time given what’s happened with the tariffs that have been imposed on India." She noted that while valuations remain elevated, the tariffs could trigger a broad valuation re-rating downwards, potentially making domestic-oriented stocks more attractive. But that’s little comfort for sectors already under pressure.
India’s corporate earnings growth has languished in single digits for five consecutive quarters, a far cry from the robust 15%–25% annual growth enjoyed between 2020–21 and 2023–24. Following the latest round of April-June earnings announcements, forward 12-month net income forecasts for key sectors—including automobiles and components, capital goods, food and beverages, and consumer durables—were all slashed by about 1% or more, according to LSEG IBES data. It’s a sobering reversal for a market that not long ago was the darling of global investors.
Bank of America’s most recent fund manager survey underscores the shift in sentiment: India has plummeted from the most-favored to the least-preferred Asian equity market in just two months. For many, the speed of this reversal is as troubling as the trend itself. Rajat Agarwal, Asia equity strategist at Societe Generale, summed up the mood, stating, "After disappointing earnings growth of only 6% in 2024, the pace of recovery remains sluggish in 2025, as indicated by both the economic growth parameters and corporate earnings."
Despite these headwinds, India’s economic fundamentals remain relatively robust. The country’s real GDP growth averaged an impressive 8.8% between fiscal years 2022 and 2024, the highest in the Asia-Pacific region. Looking ahead, projections suggest annual growth of 6.8% over the next three years. Yet, these numbers mask a more nuanced reality: while the broader economy continues to expand, the benefits are not being evenly shared, and the threat of external shocks is ever-present.
The impact of the US tariffs is not limited to boardrooms and economic forecasts. On the ground, sectors such as textiles—which employ millions in India—are bracing for the fallout. A sustained 50% tariff, as highlighted by MUFG’s analysis, could be devastating for these labor-intensive industries, threatening jobs and undermining the very foundation of India’s export-driven sectors. The ripple effects could extend far beyond factory floors, touching families and communities across the country.
In response, the Modi government’s tax reforms are designed to stimulate domestic demand and offset some of the pain from lost export revenues. The reforms, which lower consumption taxes, are expected to put more money in the pockets of ordinary Indians, spurring spending and helping to support businesses that rely on the home market. While economists at Standard Chartered see this as a positive step, they caution that it may not be enough to fully counteract the drag from reduced exports to the US.
Meanwhile, the political implications of the trade dispute are coming into sharper focus. Nikki Haley’s warning to Trump underscores the strategic dimension of the US-India relationship. As she put it, tariffs risk "shattering the US-India alliance and handing China the edge." For policymakers in both capitals, the challenge is to balance economic interests with broader geopolitical objectives. Washington’s moves are being watched closely not just in New Delhi, but also in Beijing, where any rift between the world’s two largest democracies is likely to be seen as an opportunity.
Back in India, the mood among investors and business leaders is cautious, if not outright anxious. The sharp earnings downgrades, the re-rating of equity markets, and the tepid pace of recovery all point to an economy at a crossroads. As Raisah Rasid observed, the coming months will be critical in determining whether domestic reforms can offset external shocks and restore investor confidence. For now, the only certainty is uncertainty itself.
For India, the path forward will require deft policy maneuvering, continued reforms, and perhaps most importantly, a renewed commitment to its partnership with the United States. As global economic tides continue to shift, the choices made in New Delhi and Washington will shape not just the future of their own economies, but also the broader balance of power in Asia and beyond.
With the world watching, India’s next moves—at home and abroad—could well determine whether it remains a rising star in the global economy or faces a period of prolonged turbulence.
