India's economic future appears promising, with a recent report from global consultancy EY forecasting the nation to emerge as the world's second-largest economy in purchasing power parity (PPP) terms by 2038, reaching a projected GDP of USD 34.2 trillion. The report, citing IMF projections, also suggests India could surpass Germany to become the third-largest economy in market exchange rate terms by 2028. This optimistic outlook is underpinned by India's robust economic fundamentals, including a median age of 28.8 years in 2025, the second-highest savings rate, and a projected decline in government debt-to-GDP ratio. Furthermore, structural reforms such as GST, IBC, financial inclusion through UPI, and production-linked incentives are strengthening competitiveness across various industries, contributing to the nation's resilient growth trajectory.

However, the Indian economy is currently navigating a significant challenge posed by the imposition of a 50% tariff by the United States on a substantial portion of Indian exports, which came into effect on August 27, 2025. This tariff comprises an initial 25% duty and an additional 25% imposed due to India's purchases of Russian oil. The measure is set to impact an estimated $48.2 billion to $60.2 billion worth of Indian goods, with labor-intensive sectors such as textiles, gems and jewellery, shrimp, leather, and footwear expected to be hit hardest. Experts warn that this "strategic shock" could significantly reduce India's exports to the US, potentially leading to job losses and a widening trade deficit.

In response to these tariffs, the Indian government is exploring various countermeasures. Minister of State for External Affairs Kirti Vardhan Singh affirmed the strength of the Indian economy and industries, stating that the government would not let the country suffer. The Reserve Bank of India (RBI) has, despite global headwinds, maintained its growth forecast for 2025-26 at 6.5%. The government is pushing a 'Swadeshi' mantra, encouraging domestic consumption with Prime Minister Narendra Modi urging citizens to be "vocal for local." Additionally, India plans to diversify its export markets by targeting 40 key countries, including the UK, Japan, and South Korea, and is considering financial incentives for affected exporters. The Commerce Ministry is scheduled to meet with exporters from impacted sectors to devise strategies to mitigate the tariff's effects. Negotiations for a bilateral trade agreement (BTA) between India and the US are ongoing, though the latest round was postponed, with India emphasizing its firm stance on protecting the interests of its farmers, fishermen, and small businesses.