Price of Partnership: India Faces Tariff Blow Over Russian Oil Ties

Background:

On the 27th of August Trump announced the increase of 25% tariffs to 50% on most US imports from India. This move by Trump was a direct penalty for India's long-term purchase of Russian oil and gas, with the country importing 1.5 million barrels per day of Russian crude oil and planning to increase that figure by 10-20% in September, which the White House sees as directly funding Russia's ongoing war in Ukraine. This step in favour of Ukraine comes shortly after Trump's recent talks with Zelensky in mid-August, during which Trump stated that he would provide "a lot of help" to Ukraine.

Effect on the Indian Market:

These tariffs have come at a bad time for Modi, with India’s GDP grew at an annual rate of 7.8% in the June 2025 quarter, surpassing economists' forecasts, fuelled by the surge of Indias manufacturing, construction and service sectors. Furthermore, food prices have been falling, allowing an 8 year low for retail inflation at 1.55% in July.

However, because the cumulative tariffs are significantly higher than neighbours such as China, outbound shipments to the US could be reduced by 60%, with Bloomberg estimating an overall GDP hit of up to 1.1% once tariffs on industries such as pharmaceuticals are officially included. This has led to the Indian Chief Economic Adviser announcing a potential downside risk to his 6.3%–6.8% projected GDP growth this year.

Export-oriented industries, including textiles and jewellery, are perceived to exert the most significant influence. Although these sectors account for a modest 14% of the Indian economy, the Global Trade Research Initiative posits that a decline in exports resulting from tariffs could jeopardize hundreds of thousands of jobs within the next 12 months.

The more immediate impact of this tariff can be witnessed by the decline in the Indian stock market, with the NIFTY 500 falling by 2.56% and the BSE SENSEX falling by 2.21%. Furthermore, the price of Rupee to Pound Sterling has fallen similarly by 0.9% within the last 5 days. These drops, whilst are not huge demonstrate a sense of fear within the Indian economy on its long-term stability with 18% of all Indian exports going to the US. This demonstrates that longer-term drops within the. Indian economy could be forthcoming if these tariffs continue to be put into place.

Indias Response:

One of India's more subtle responses to these tariffs is a strategic, symbolic move towards other powers. This was evident at the Shanghai Cooperation Organisation summit in Tianjin, where Indian Prime Minister Narendra Modi, Chinese President Xi Jinping, and Russian President Vladimir Putin exhibited tangible solidarity. This was interpreted as a statement of defiance directed at the US, with Trump asserting that he had "lost India and Russia to the deepest, darkest, China." This was particularly noteworthy as it marked Modi's first visit to China in several years, illustrating India's desire to strengthen its ties with nations that many consider to be the most significant challenges to the US. This approach enables India to pursue strategic autonomy while also being capable of addressing and reacting to pressures from the US.

India has also implemented domestic reforms to alleviate the impact of these tariffs, most notably tax reduction (GST 2.0) on many consumer items and measures to support struggling exporters. This simplified tax reform should slash rates on Indian goods, helping Indian manufacturers to remain competitive in the global market while compensating some of the revenue lost from the US market. This may be seen in businesses such as man-made fibres, where duty has been reduced from 18% to 5%. Though the effects of these tax cuts is difficult to predict at this early stage, their aims are clear: these cuts are a step towards being able to soften the impact of these tariffs and being more independent from America. However, while it may provide some comfort, it is unlikely to fully negate the effects.

Conclusion:

Trump's new tariffs send a clear message that strategic decisions, such as India's prolonged energy trading with Russia, now have real economic consequences. Critical export sectors and hundreds of jobs are now at jeopardy, while once-booming industries are under pressure. India's reaction, which combines domestic reforms and foreign realignment, represents a larger effort to assert strategic autonomy. While the full impact of these resolutions is yet to be seen, it represents a defining test of India's economic resilience and diplomatic autonomy, with the option of fully abandoning Russian oil or becoming autonomous from the US and aligning itself more closely with nations such as China.