India’s deft navigation through global economic turbulence highlights its resilience amid President Trump’s aggressive trade and energy policies. However, can India grow the way we want, given the global headwinds? To me, the impact of these headwinds are transient, however it makes India brilliantly stoic in dealing with economic diplomacy and prolonged macroeconomic uncertainties. Here is why.
The October 22, 2025, sanctions on Russia’s Rosneft and Lukoil—the harshest U.S. measures since the 2022 Ukraine invasion—have compelled New Delhi to recalibrate its energy imports, shifting from discounted Russian crude to costlier West Asian supplies. Yet, as refiners like Reliance Industries pivot to avoid crippling penalties, optimism emerges on the trade front that India and the U.S. are “very near” a bilateral trade pact, with negotiators refining the legalese in real-time. This delicate balance—securing energy while countering 50% plus tariff threats—showcases India’s economic diplomacy, prioritising 7% GDP growth in a multipolar world.
India’s smart, but tough move in procuring energy security:
The sanctions strike at India’s energy core. Russian oil, supplying 34% of India’s 5.4 million barrels-per-day demand in FY26 (down from 36% last year), offered 20-30% discounts, saving $10-12 billion annually on the $200 billion import bill. These savings kept fuel affordable for factories, trucks, and households, fueling India’s 7% growth engine.
The U.S. Treasury’s embargo, targeting Russia’s “war ATMs,” threatens Indian and Turkish refiners with SWIFT exclusions and asset freezes, forcing a 50% cut in Russian volumes. Reliance, Russia’s top Indian buyer, is complying, ramping up imports from Iraq’s Basra Medium (20% of imports), Saudi Arabia (12%), and the UAE (10%). OPEC+’s timely 137,000 barrels-per-day production hike from November stabilises Brent crude at $75, easing supply concerns. However, this shift inflates procurement costs by $10-12 billion yearly, raising diesel and petrol prices.
The economic fallout is palpable but manageable.
Higher fuel costs will squeeze energy-intensive sectors, with manufacturing margins down 5-7% and logistics costs up 10-15%. This could plummet 0.3-0.5 percentage points of FY26 GDP growth, pushing inflation, already at 1.5% CPI, higher. India’s 82% import-dependent oil demand underscores the vulnerability, but domestic buffers—strategic reserves covering 10 days and a 15 GW solar capacity boost in 2025—mitigate the impact. However the economic growth drag should fade within two quarters as supply chains do adjust and rupee hedges stabilising the currency at 83-84 to the dollar. These headwinds, while challenging, are transient, unlikely to derail India’s $5 trillion GDP goal by 2027.
Limited systemic impacts, but severe sectoral pains:
Compounding the energy squeeze is Trump’s tariff offensive. His administration’s 25-50% levies on Indian electronics, autos, and textiles, plus 25% punitive tariffs for Russian oil purchases and 15% reciprocal duties, aim to bolster U.S. manufacturing but misjudge India’s global trade footprint. At 1.8% of world merchandise trade—less than 1% of India’s $3.9 trillion GDP per WTO estimates—the $80 billion U.S. export market faces a 10-15% dip in affected sectors. This sectoral pain, confined to a few quarters, can be rerouted via free trade agreements (FTAs) with ASEAN and the EU, which absorb 20% of India’s exports. The tariffs’ limited systemic impact reflects India’s modest global trade share, allowing flexibility to pivot.
India’s strategic response lies in aggressive diversification through “near-shoring.” In a fractured global economy, trade gravity models—favouring proximate, low-friction partners—prove prescient. Amid U.S.-China decoupling, New Delhi has boosted ASEAN trade by 12% year-on-year to $120 billion, while “China-plus-one” strategies have attracted $50 billion in FDI from tech giants like Apple and Samsung. Operational FTAs with the UAE and Australia, slashing duties on 90% of goods, bolster this shift. Exports to non-traditional markets have surged 20% since 2023, reflecting a decade-long pivot toward a resilient trade web that dilutes reliance on any single bloc, including the U.S.
India’s macroeconomic resilience
Macroeconomic resilience fortifies this strategy. The RBI’s $702 billion forex reserves, up $4.5 billion for the week ending October 17, cover over 12 months of imports, shielding the rupee from volatility. A fiscal deficit targeted at 4.9% of GDP and inflation-targeting frameworks ensure stability. India’s pragmatic stance—prioritizing affordable energy and inclusive growth over Western pressures—resonates in its UN vote abstentions while deepening Quad ties for Indo-Pacific security. This multipolar approach positions India as a bridge-builder, not a supplicant, in global alignments.
‘Close to a trade deal’ pre-empting any geopolitical isolation:
The trade deal’s progress is a testament to this resolve. Saavy bargaining is in progress, ensuring India avoids geopolitical isolation amid Trump’s tariff and sanction pressures. After five rounds of talks, India and the U.S. are converging on a “mini-deal,” potentially halving tariffs to 15-16% on Indian exports like textiles in exchange for U.S. agricultural access, such as corn and soybeans. Virtual negotiations on intellectual property and digital trade signal momentum, with closure eyed by year-end. The pact could propel bilateral trade to $500 billion by 2030, per government estimates, while shielding against tariff escalation.
For the U.S., this strategy carries risks. Trump’s tariffs, while populist, fuel inflation, complicating the Federal Reserve’s path. The October 28-29 FOMC meeting anticipates a 25-basis-point rate cut to 3.75-4.00%, but recessionary signals—unemployment at 4.3% and softening labor markets—clash with tariff-driven price spikes, estimated to lift CPI by 0.5-1%. The Fed, once dovish after 2024 easing, may resist further cuts if import duties spark a wage-price spiral, indirectly pressuring Washington to soften its stance on allies like India. This asymmetry—India’s short-term pinch versus America’s structural inflation—tilts the negotiating table in New Delhi’s favour. It is also a no brainer that Jay Powell may not be able to go dovish the way he wants the Fed to be, given the attacks from Trump on Central Bank Independence.
India’s economic diplomacy is its best in this high-stakes game. By bargaining down punitive tariffs while expanding trade with ASEAN and the Middle East, India mitigates the 25% oil-related levies and 15% reciprocal duties. The looming trade deal, built on mutual concessions, underscores convergence on digital trade and market access, positioning India as a strategic partner rather than a target. The sanctions and tariffs test India’s resolve, but they also unlock opportunities.
OPEC’s supply boost ensures affordable West Asian oil, while neighborhood trade and FDI inflows fortify growth. Global headwinds may slow India’s path to a $5 trillion GDP by 2027, but they won’t derail it. The oil sanctions and tariff threats are transient, with impacts fading as India leverages its $702 billion reserves, 15 GW renewable push, and diversified trade web. The impending trade deals rooted in pragmatism, diversification, and resilience ensures India thrives amid the geopolitical storms, sustaining 7% growth. However, we have sleepless nights to manoeuvre through these uncertainties, by recalibrating the internal fiscal and monetary policies.
[ prepared for DW News , Germany, appeared on October 27th 2025]