India, one of the world’s fastest-growing major economies, is projected to experience a slowdown in 2025. Several factors contribute to this deceleration, including the implementation of American tariffs, global economic uncertainties, and domestic challenges.
Projected Economic Slowdown
According to Moody’s Analytics, India’s GDP growth is expected to slow to 6.4% in 2025, down from 6.6% in 2024. This deceleration is attributed to new U.S. tariffs and weakening global demand, which are anticipated to weigh heavily on India’s export sector. The Asia-Pacific region as a whole is projected to experience slower growth due to trade tensions and policy shifts.
The Reserve Bank of India (RBI) has also acknowledged the slowdown, noting that GDP growth fell to 5.4% in the July-September quarter of 2024, the lowest in seven quarters. In response, the RBI has implemented measures such as income tax relief and a reduction in the repo rate to stimulate economic activity. These initiatives aim to boost both urban and rural demand, with the RBI forecasting a growth improvement to 6.6% in the January-March 2025 quarter.
Impact of American Tariffs on India’s Economy
The U.S. government’s decision to impose tariffs of at least 25% on imports of pharmaceuticals and semiconductors presents a significant challenge to India’s economy. In the fiscal year 2024, Indian pharmaceutical exports to the U.S. amounted to $8.7 billion, representing 31% of India’s total pharmaceutical exports. Major Indian pharmaceutical companies, including Sun Pharmaceutical, Dr. Reddy’s Laboratories, and Cipla, heavily rely on the U.S. market. The imposition of these tariffs could lead to increased costs for consumers and reduced competitiveness of Indian products in the U.S. market.
However, some analyses suggest that the overall impact of these tariffs on India’s GDP may be limited. S&P Global Ratings indicates that due to India’s domestically driven economy, the effect of U.S. reciprocal tariffs might be minimal. Similarly, a report by Goldman Sachs estimates that the tariffs could impact India’s GDP by 0.1% to 0.6%, depending on the extent of the tariffs and India’s export exposure.
India’s Geopolitical Concerns and Relations with the U.S.
India’s apprehension in facing the U.S. stems from several geopolitical and economic factors. The U.S. is one of India’s largest trading partners, and any strain in bilateral relations can have significant economic repercussions. The imposition of tariffs and potential trade wars could disrupt India’s export markets, leading to economic instability.
Additionally, India’s strategic interests, such as defense collaborations and regional security concerns, are closely tied to its relationship with the U.S. Maintaining a favorable diplomatic relationship is crucial for India’s access to advanced technologies and defense equipment. This dependency creates a complex dynamic, where India must balance its domestic interests with the demands and policies of the U.S.
Diplomatic Pressures
India’s prompt action to repatriate its citizens following a directive from President Donald Trump highlights its sensitivity to diplomatic pressures. This swift response underscores India’s reliance on maintaining positive relations with the U.S., especially given the significant Indian diaspora and the economic contributions of Indian professionals in America. Such actions reflect India’s broader strategy to avoid diplomatic conflicts that could lead to economic sanctions or reduced bilateral cooperation.
Potential Threats from BRICS
The BRICS consortium, comprising Brazil, Russia, India, China, and South Africa, aims to promote economic cooperation among emerging economies. While BRICS offers a platform for collaboration, it also presents certain challenges for India. China’s dominant economic position within BRICS can lead to imbalances in decision-making and trade policies that may not always align with India’s interests.
Furthermore, differing political ideologies and economic priorities among BRICS members can result in conflicts of interest. For instance, India’s geopolitical tensions with China and differing stances on global issues with Russia can complicate unified action within the group. These internal dynamics may pose threats to India’s strategic objectives and its ability to leverage BRICS as a counterbalance to Western economic influences.
Economic risks
In 2025, India faces a confluence of economic risks arising from external pressures such as U.S. tariffs, internal economic challenges, and complex geopolitical dynamics. While projections indicate a slowdown in growth, India’s robust domestic market and proactive policy measures may help mitigate some adverse effects. Navigating these challenges will require strategic economic planning, diplomatic agility, and strengthening of domestic industries to reduce vulnerability to external shocks.
