Reading the headlines, you’d be forgiven for assuming India is embroiled in uncertainty. Reports vary from day to day. Some suggest US tariff negotiations are nearing completion, potentially bringing import duties down from their current 50% to around 15–16%.
Public statements on the negotiations have conveyed differing messages. Union Minister Piyush Goyal declared India “will not agree to a deal with a gun to its head.” Yet amid the political noise, a very different story is playing out back home and bodes well for Indian equity investors.
The pressure from Washington is proving to be a catalyst for significant government reform. Far from weakening India’s economic trajectory, it is triggering a new round of domestic stimulus that stands to leave the country on a stronger footing – whatever form the final tariff deal takes.
Reform through adversity
History shows that external pressure often accelerates India’s internal transformation. We saw it in 2019, when the government reignited economic momentum with sweeping corporate tax cuts in response to slowing global growth. Today, we are seeing it again.
At the heart of the current response is India’s most significant tax reform in eight years. At the end of September, prime minister Narendra Modi’s administration introduced major cuts to the Goods and Services Tax (GST) in a bold move aimed at offsetting potential economic fallout from US tariffs.
The reductions spanned a wide range of products, from vehicles to household goods, easing consumer costs and encouraging spending. And really, the timing could not have been better.
With households deferring purchases ahead of the tax changes and the festive season approaching, pent-up demand was primed to explode. Add in soaring gold prices, which have made Indians feel wealthier overall, and the result has been an extraordinary consumption surge.
The numbers speak for themselves. Bank advances more than doubled year-on-year during September and October. Car sales hit an all-time high in October. Credit card spending climbed to a record 2.17 trillion rupees in September. Even GST collections themselves rose 4.6% year-on-year that same month despite the cuts.
India’s domestic economy clearly remains remarkably resilient
Since early September, the Nifty 50 has resumed its rally toward all-time highs, buoyed by both consumer confidence and government spending. Companies like Delhivery and Maruti are reporting record sales volumes in October.
Meanwhile, SBI Capital Markets has noted that the increased focus on domestic strength (with both union and state governments also increasing capital expenditure year-to-date) should sustain steady economic growth through the second half of 2025 – ongoing trade tensions notwithstanding.
Reform momentum builds
This environment presents favourable conditions for Indian equity markets and, in our view, the positive momentum is likely to persist from here.
Historically, once reform takes hold in India, it tends to gather pace. Having acted decisively on domestic consumption, Modi’s government may now turn its attention to the external front.
India has long been criticised for protectionist policies: high tariffs (particularly on automobiles), restrictions on foreign property ownership, rigid labour laws and an often cumbersome judicial system.
These barriers have historically deterred foreign investors and constrained the nation’s progress in global competitiveness rankings. Now, with the US turning up the pressure, conditions may be aligning for a new phase of liberalisation.
To sustain growth, India could well move toward reducing trade barriers, streamlining regulations and introducing incentives to attract foreign capital. Such measures could help mitigate the impact of any residual tariffs and support increased private sector investment.
Far from derailing India’s growth story, this moment of friction could mark the start of a deeper structural strengthening, as past challenges have done before.
What’s next?
We remain cautiously optimistic that a resolution on tariffs will eventually be reached. The current 50% rate looks unsustainably high, particularly now that it’s greater than even China’s 47% levy. With India and the US continuing to advance cooperation in areas like defence, a more balanced settlement seems likely.
Regardless of the outcome of tariff negotiations, domestic reforms and steady macro fundamentals underpin India’s near-term outlook.
Early signs suggest policy measures are already supporting growth and investor sentiment. The longer these reforms continue, the more entrenched the benefits will become.
Longer-term investors should not overestimate the risks posed by tariff headlines. What may look like short-term turbulence is, in reality, fuelling the very policy shifts that strengthen India’s long-term investment case.
As we have seen before, when India is under pressure, it doesn’t retreat; it reforms.
Andy Draycott is the manager of the Chikara Indian Subcontinent fund. The views expressed above should not be taken as investment advice.