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The Great Indian Trade Pivot
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Good Morning. As uncertainties around tariffs wax and wane as per US President Donald Trump’s whims, Indian businessmen are wary of waiting. While businesses are already pivoting to new markets and other solutions, the Indian government is also expected to provide support to tariff-hit small companies.
In other news, Foxconn has kickstarted iPhone 7 production at its Bengaluru unit even though at a small scale, amidst tariff woes. Meanwhile, the markets regulator has seen a surge in settlement pleas against the orders that were given out for various kinds of violations.
THE TAKE
India Can Rise Against The Economic Blockade
Almost five months have gone by since president Trump’s landmark April 2 announcement of reciprocal tariffs. Businesses all over the world are no wiser nor better prepared than they were on April 1, 2025.
This applies to India as much as it does world over, particularly countries that export heavily to the United States.
Businesses have been hoping all this while that we would arrive at some sort of agreement on tariffs, Rahul Mehta of the Clothing Manufacturers Association of India (CMAI) representing some 20,000 manufacturers told me on The Core Report’s weekend edition.
There are two broad streams of advice. For policy, it is about staying calm and keeping Trump happy, if you can. For business, it is now time to think of Plan B.
The Meeting In Alaska
A 25% tariff rate is not easy to match for the hundreds of thousands of small businesses across industries like apparel, seafood exports and gems and jewellery. And a 50% tariff as threatened by President Trump for continuing to buy Russian oil is an effective economic blockade.
Though he did drop hints after his meeting with Russian President Vladimir Putin in Alaska over the weekend that he may go easy on additional tariffs on India and China. But it was a hint and nothing more.
As we have seen before, it’s not to say even if the additional 25% is pulled back, it will not resurface in another form for another reason a few weeks later.
Stocks Don’t BIte The Tariff Bullet
The interesting thing is that despite all this business uncertainty world over and in India, stock markets hit record highs, led of course by Wall Street. India of course is still below its September 2024 lows and thus yet to join the party.
Indian markets are still holding out fairly well, given that earnings growth in recent quarters have disappointed and there are no star performers, industries or companies to lift the whole market. Like AI has done for Wall Street.
The market's strong standing could be reflecting something deeper.
Which is that the global economy is more resilient today than ever before and better geared to deal with Trump’s tariff tantrums, even if we may not feel so right now.
How Much Does India Trade With US?
Let's look at India for a moment. Some 70% of Indian goods exports to the US, or around $60.85 billion, are now facing a 50% tariff imposed by the US.
But an analysis by the Indian Council for Research on International Economic Relations (ICRIER) shows that the figures are just 1.56% of India’s GDP and 7.38% of total exports.
For a $3.9 trillion economy, this is a minor dent. The problem of course is that these are some of the most labour intensive industries in the country and include formal and informal employment. Which means overall growth figures, though lower than ideal, would still stay mostly on course.
Why are markets still so bullish? Incidentally, more than half the rich world’s stock markets are within 5% of their all-time high, an Economist article titled Disaster Proof Capitalism last month pointed out.
Rise Of Resilience
That’s because businesses have become more resilient and Governments have responded faster to help them and their economies in times of need.
Supply chains have become more sophisticated and adapting more smoothly even to radical changes. Thanks to all of this, since 2011, growth has continued at around 3% a year including through several crises including the 2022 invasion of Ukraine by Russia.
The only exception was the pandemic. The Economist argues the world economy has thus become impressively and increasingly shock-absorbent.
Supply chains are resilient, energy sources have become more diverse and policy making is also responsive. This year just 5% of countries are on track for a recession, according to IMF data—the least since 2007.
What about corporate earnings? In the first quarter of 2025 global corporate earnings rose by 7% year on year points out The Economist. So what is the takeaway for India? Well, India has actually shown for close to 35 years, that it responds well to crises. Or conversely, India is known to respond best only when there is a crisis.
India’s GST Rationalisation
Prime Minister Modi’s Independence Day speech with detailed references to upcoming reforms for businesses and lower goods and service (GST) tax to fuel consumption could be interpreted partly as one such response.
And there will be solutions even for India’s exporting industries.
Mehta of the CMAI argued they would surely benefit if import duties on raw materials, including fibre, were reduced. That obviously hurts local manufacturers who have managed to get and hold on to their tariff and non tariff protection for many years.
They too might find other ways to survive and compete more effectively.
Mehta also said that some large manufacturers are shifting their production to other plants in other countries which they also own and face lower tariffs. The hunt for new export markets is on in earnest, though admittedly in some cases, the US is too large to substitute. Like shrimp exports.
Other apparel makers are visiting or revisiting the domestic market and talking to some of the retail giants.
The larger point: businesses are now shaking themselves out of their stupor and focussing on solutions.
So Indian businesses with some help from the Government and policy makers can weather or at least better weather this current trade imbroglio, whether 25%, 50% or more. The global growth stars are aligned in their favour and have been for some time as The Economist points out.
Which of course does not mean we can take anything for granted, whether it is success or survival. It's just that the chances of coming out of this difficult economic phase steadier if not stronger are good and perhaps improving by the day.
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CORE NUMBER
Rs 20,975 crore
That’s how much foreign institutional investors (FIIs) offloaded in the first half of August – thanks to trade tensions and a weakening rupee. The lacklustre Q1 earnings report also did not help, taking the total outflow to Rs 1.16 trillion in 2025, so far. The strengthening of the US Dollar also takes the sheen off emerging markets like India.
FII investments have been in the red for the last two months, reversing the sentiment seen in the first three months of FY26.
July: Net Outflow of Rs 17,741 crore
June: Net Inflow of Rs 8,466 crore
May: Net Inflow of Rs 18,082 crore
April: Net Inflow of Rs 4,243 crore
S&P’s recent upgrade of India’s credit rating and a possible pause in the additional 25% tariffs could boost sentiments. Foreign portfolio investors invested Rs 4,469 crore in the debt general limit in August so far.
FROM THE PERIPHERY
Trade Talks Deferred
The much awaited trade talks between India and US officials, to be held in the third week of August, have been called off, says a report by Reuters. A US delegation was expected to visit India between August 25 to 29.
Why It Matters: The cancellation dashes hope of a relief from an additional 25% penalty India faces for buying Russian oil. The date wherein the additional 25% on top of an existing 25% duty comes into effect is August 27. The markets have been hoping they would be paused as the deadline falls right amidst the negotiation dates.
How We Got Here: If the 50% slab goes unchecked, India will be amongst the countries with highest import duties levied by the US. The country is unhappy with India purchasing Russian oil, as it is involved in a war with Ukraine. US President Donald Trump has met Russian President Vladimir Putin in Alaska this weekend, but no headway seems to have taken place.
Settling With SEBI
Markets regulator Securities and Exchange Board of India (SEBI) is seeing a surge in pleas to settle disputes, as opposed to lengthy legal disputes. The settlement could be achieved by paying a fee and complying with certain conditions.
Catch Up Quick: SEBI received 703 such settlement applications in FY25 as opposed to 435 in FY24. It has settled 284 such pleas with appropriate orders in FY25. It has also collected Rs 798.87 crore via settlements, in addition to Rs 64.84 crore in the form of disgorgement charges. Another 272 applications were returned, rejected, or withdrawn.
Context: These pleas were sent in response to orders issued for alleged violations like insider trading, fraudulent trading practices, Alternative Investment Funds (AIFs), mutual funds, and Foreign Portfolio Investors (FPIs) etc.
iPhone 17 Production Starts In Bengaluru
Taiwanese giant Foxconn’s Bengaluru unit kickstarted production of iPhone 17 albeit at a small scale, says a report by PTI. Its Chennai unit has already started production of Apple’s latest iPhone.
The Shift: Apple’s CEO Tim Cook said that a majority of the iPhones sold in the US in June 2025 originated from India. As per S&P Global, iPhone sales in the US were 75.9 million units in 2024. India might need to add more capacity or redirect shipments bound for the domestic market to meet such demand.
What’s Next: Apple plans to almost double its iPhone production to 60 million units this year. It was at 35-40 million units in 2024-25. India has already assembled 60% more iPhones in FY25, and it’s worth an estimated $22 billion.
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