The global economy is experiencing another period of uncertainty due to high trade tariffs, mounting fiscal strains in developed markets, and signs of fragile capital flows.
Yet, India’s growth trajectory remains resilient, supported by domestic consumption and government spending, said SBI Capital Markets in a report on Tuesday.
The report, titled ‘Tariffs are Made in the USA, but Resilience is Made in India’, said the US’s aggressive tariff regime has become a key flashpoint.
The legal standing of the tariffs, however, is unsettled: a US appeals court recently ruled them unconstitutional, prompting the administration to escalate the case to the Supreme Court, it said.
“The administration has escalated the case to the Supreme Court, leaving three broad outcomes: tariffs maintained, renegotiated, or scrapped. Until clarity emerges, trade-policy volatility remains elevated, with key pressure points in autos, electronics, and textiles,” it added.
The US’s reciprocal tariffs, introduced in late August, have hit Indian exports particularly hard, imposing duties of up to 50%-including a 25% additional levy linked to crude oil imports from Russia-on key sectors such as automobiles, agri products, and textiles.
While the legal validity of these levies remains contested in US courts, the uncertainty is already affecting trade flows and investor sentiment.
Exporters face higher costs and margin pressures, prompting firms to reassess supply chains and pricing strategies.
For India, the tariffs underscore the vulnerability of its external sector to geopolitical shocks, even as domestic consumption and government spending help cushion the economy against the global fallout.
Alternative alliances
The report pointed out that alternative alliances to counter the US are likely to bolster the domestic economy.
“Global growth is proving more resilient than expected, with PMI readings at multi-month highs signalling sustained expansion. Commodity markets are also finding support, aided by China’s anti-involution measures that curb excess competition and improve industry profitability,” the report said.
“At the geopolitical level, alternative alliances such as the Shanghai Cooperation Organization are gaining traction, reshaping trade and investment flows. Together, these trends suggest a sturdier growth impulse despite lingering global uncertainties,” it added.
To be sure, Prime Minister Narendra Modi attended the 25th SCO Summit in Tianjin, China, from 31 August to 1 September, during which he focused on strengthening cooperation on security, connectivity, and opportunity, and held a bilateral meeting with Chinese President Xi Jinping and Russian President Vladimir Putin to reset diplomatic ties.
The 2025 Tianjin summit also saw India take a bold stand against terrorism and signal a strategic foreign policy shift.
SBI Capital Markets said fiscal stress in the US and the UK is adding another layer of complexity, with rising debt burdens pushing bond yield curves steeper, underscoring investor unease.
In contrast, softer US jobs data has raised expectations of a rate cut in September, reflecting the delicate balancing act between growth and debt sustainability.
“At the same time, weaker job data in the US has lifted the probability of a rate cut in the September policy review. In India, the curve remains steep as elevated state government borrowing continues to weigh on the long end,” it said.
“The divergence highlights how global growth signals are being tempered by fiscal and monetary dynamics,” it added.
Interestingly, India began 2025-26 on a solid footing, with the gross domestic product (GDP) growing 7.8% in the first quarter, buoyed by private consumption, continued government capital expenditures, and a revival in revenue spending.
“While high-frequency indicators are showing a mixed trend and trade tariff uncertainty clouds the outlook, the government’s decision to simplify the GST structure is set to release about ₹50,000 crore into the economy, boosting domestic consumption,” the report said.
“Collectively, these measures help cushion the economy against softer export prospects and external headwinds,” it added.
However, vulnerabilities remain.
“Indian equities have underperformed emerging market peers as sustained FPI (foreign portfolio investor) outflows reflect stretched valuations and steeper tariff headwinds. Despite a weaker US dollar, the Indian rupee hit a record low, down about 5% year-on-year, with the Reserve Bank of India (RBI) limiting intervention and unwinding forward positions to preserve reserves while letting depreciation aid exports,” the report said.
“Capital flows remain muted, while the current account remains manageable despite weaker merchandise exports from tariff pressures,” it added.