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The United States has announced the imposition of retaliatory tariffs of up to 50% on India, causing U.S.-India relations to hit an unprecedented low. The Indian stock market has fallen out of favor, and coupled with the significant depreciation of the Indian rupee, Indian equity funds—which had been rising for many years—have shown signs of weakness this year. Whether India can recover in the future largely depends on whether it can navigate the pressures from the U.S. and the great power rivalry unscathed.

India’s Rapid Economy Growth and Challenge

In 2023, India officially surpassed China to become the most populous country in the world. With a massive population of 1.4 billion, India has enjoyed a demographic dividend that has driven an average economic growth rate of as high as 8% in recent years, maintaining its status as the fastest-growing major economy globally. Although the GDP growth rate for 2024 is still a robust 6.5%, it has clearly slowed compared to last year’s high of 9.2%. Benefiting from rising consumer spending, both government and private investments have also increased simultaneously. India’s GDP in the first quarter of this year grew sharply by 7.4% compared to the same period last year, exceeding market expectations. The International Monetary Fund (IMF) also forecasts that India’s economic growth rate will remain as high as 6.2% this year and 6.3% next year, making it the only country in the world expected to maintain a growth rate above 6% over the next two years.

Citing IMF data, an Indian government think tank announced that India’s GDP has reached $4.19 trillion this year, officially surpassing Japan to become the world’s fourth-largest economy, behind only the United States, China, and Germany. It is expected to overtake Germany within the next three years to become the world’s third-largest economy. However, strictly speaking, this is just a “numbers game,” because India’s average high economic growth rate of 6.5% easily outpaces Japan’s low growth rate of only 0.6%, making it unsurprising that India’s GDP has surpassed Japan’s. Nevertheless, with a total population of 1.46 billion, India’s per capita income is less than $3,000—only 8.5% of Japan’s—highlighting a significant wealth gap among the Indian population. According to the Global Multidimensional Poverty Index report, as many as 234 million Indians still live in extreme poverty. India’s economy continues to face structural challenges such as slow employment growth, large income disparities, and low labor productivity.

Dilemma of India

Unmatched high-speed economic growth, a massive demographic dividend, and the risk diversification demand of the “China+1” strategy by companies amid the US-China trade conflict—including international corporations like Apple—are actively increasing their production capacity and presence in India to reduce reliance on manufacturing in China. This has made India the new darling of emerging markets in recent years, rising to become the most favored market in Asia. Over the past few decades, India’s policy toward the US has been unconditionally and strongly supportive. Current Prime Minister Modi established a very close relationship with Trump during his first term. Last year, during a joint session of the US Congress, Modi even said that “AI (Artificial Intelligence) stands for ‘America and India.'” The two leaders frequently praised each other’s friendship warmly. Even when Trump announced shocking reciprocal tariffs in April this year, Modi immediately traveled to the US to pledge to purchase American products and increase US investment. Many had expected India to be the frontrunner in obtaining reciprocal tariff benefits from the US. However, what India ultimately received was punitive tariffs as high as 50%, making it one of the very few countries worldwide to face an increase in US reciprocal tariffs. The US-India relationship has gone from extremely close to an unprecedented low point. What is the key reason behind this?

India’s past foreign policy has been about balancing between the U.S., Russia, and China to seek the best possible benefits. Although Modi is a pro-American right-wing politician, domestic public opinion in India tends to be more pro-Russian than pro-American. This is mainly because India has maintained close cooperation with the Soviet Union since 1971, with as much as 70% of its military equipment coming from Russia. Moreover, after the outbreak of the Russia-Ukraine war in 2022, Russia faced severe economic sanctions and energy import restrictions from Western countries and their allies. Russia then redirected its crude oil exports to China and India, offering India a discount of $15-20 per barrel starting in 2022. India’s oil imports from Russia surged dramatically from 100,000 barrels per day to 2.08 million barrels per day, a 20-fold increase, accounting for 44% of India’s total crude oil imports. During this period, India saved as much as $33 billion in energy costs. Therefore, when Trump demanded that India stop purchasing Russian oil and weapons, Modi found himself in a dilemma due to the huge economic benefits and defense dependencies involved. Additionally, when Trump previously mediated the India-Pakistan conflict, he gave Pakistan equal status, and the Pakistani government even announced nominating Trump for the Nobel Peace Prize, which sparked intense dissatisfaction among the Indian public.

India’s New Challenge

India’s economy is highly dependent on the service and IT industries. Trump even included India’s vital industries—such as pharmaceuticals, semiconductors, and automobiles—under Section 232 of the Trade Expansion Act. In 2024, India’s total exports to the U.S. are expected to reach $87 billion. If the reciprocal tariffs, which can be as high as 50%, are not reduced, the affected industries will not only include services and IT but also traditional sectors like textiles, footwear, and jewelry. This will directly impact India’s economy, potentially pushing it into a recession.

Facing the onslaught of Trump’s high tariffs, Modi seems unwilling to fully submit. Instead, he has put on hold the original plans to purchase American weapons and aircraft and has joined forces with other BRICS countries to counter the United States. In the past, China-India relations once hit a freezing point due to military clashes along the Himalayan border. However, there has been a noticeable easing recently. Modi plans to visit Tianjin, China, at the end of August this year to attend the Shanghai Cooperation Organization summit in Tianjin. This will be Modi’s first visit to China in seven years. Modi has also spoken with Brazilian President Lula and Russian President Putin. Such a political gamble has led Modi to openly admit that he may pay a significant personal political price because of this trade dispute.

India Equity Funds Performance Analysis

India is currently facing multiple pressures simultaneously, including international trade friction, weak corporate profits, and high valuations. The 50% tariff impact has not only hurt the profit outlook for export-oriented industries but also weakened India’s appeal as a safe haven in the global capital markets. According to LSEG Lipper statistics, as of August 18, the Indian SENSEX index has risen by 4% year-to-date. Although it has shaken off the shadow of equivalent U.S. tariffs since April, there are currently 25 registered India equity funds (excluding ETFs) available for sale in Taiwan domestically, denominated in New Taiwan dollars. These India equity funds have seen an average performance decline of 10.2% year-to-date, with an average drop of 2.2% over the past three months and 1% over the past six months. The key factor behind this is currency fluctuations, as the Indian rupee has depreciated by 10.2% against the New Taiwan dollar this year, offsetting the performance of the India equity funds.

Table 1: Performance of Equity India Funds RFS in Taiwan

(Click on image to enlarge)

Source：LSEG Lipper, as of 2025/8/18, in TWD

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