Rajeev Narayan

With intent to beat back economic fires before they get kindled, the Government is stepping in with a slew of measures to revitalise growth and drive up domestic demand. While the most visible and talked-about move has been the recent rationalisation of the GST structure, other strategic initiatives have been launched and have been extremely effective, such as the Production Linked Incentive (PLI) scheme launched in 2021. Together, this ‘revival package’ of sorts has helped India ride out the recent US tariff storm and emerge relatively unscathed, compared to other emerging global economies.

The catalyst for a revisit of the domestic economic strategy has been recent reports by the International Monetary Fund and the Reserve Bank of India, which expressed concern over the slowdown of individual savings rates in India, and an increase in loan defaults and credit card payments, especially among the burgeoning middle class. “For decades, the middle class has been the backbone of a nation in motion. It is made up of people who have worked, saved, consumed and believed in India. It is commendable that the Indian Government is tackling the issue head-on,” Peter Jarvis, an analyst with JLL, said.

Mirroring his sentiments was Chief Economic Advisor V. Anantha Nageswaran, who reiterated that India’s long-term growth story remains intact, with a projected per capita income of Rs 15 lakh by 2047. The Government and the RBI have implemented various moves to stabilise the financial system, clean up credit lines and inspire investor and middle-class confidence.

Tackling the Tariffs Head-On

The shock of the 50-per cent US tariff has been raising eyebrows, but it has also accelerated India’s push to deepen its domestic growth drivers. According to data from the Ministry of Commerce and Industry, the United States accounted for 18 per cent of India’s total exports in 2024. Sectors such as textiles, pharmaceuticals, and engineering goods were expected to feel the pinch. But a fast recalibration of trade routes, including intensified engagement with Southeast Asia, Africa, and Europe, is already underway.

With the middle-class resurgence a key target area, the Indian Government is drawing strength from its resilience. Indians have always had a savings-first culture, a strong sense of fiscal caution and a belief that tomorrow will be better. Rising inflation has dented that safety net, hitting disposable income and salary hikes. To counter this and achieve greater growth, bolstering lending activities, the Government is planning debt relief and loan revamp for distressed segments to provide breathing space, while interest subventions for unsecured loans in vulnerable brackets will be used to stop the malaise from spreading.

India is not the first to resort to such innovative steps, and nations such as South Korea and Japan have already shown that wage support and credit backstop schemes can protect the middle tier through economic shocks. India is now adapting similar tools, not as handouts but as strategic stabilisers. Beyond immediate relief, rebuilding middle-class financial resilience is a policy priority. Tax incentives to restore a savings culture, low-interest refinancing windows for gold loan distress and oversight of private credit networks can form the foundation of that rebuilding.

Broadening the Growth Horizon

Additionally, targeted fiscal support is being paired with a push for investment-led growth. Under the PLI scheme alone, investments worth over Rs 1.25 lakh crore have been committed across sectors, including electronics, automotive and pharmaceuticals. The scheme is expected to generate 60 lakh jobs over the next few years, apart from building on the long-standing objective of strengthening local manufacturing and reducing dependence on external markets.

Complementing this is the massive infrastructure build-out under the PM Gati Shakti National Master Plan, designed to improve logistics efficiency and reduce costs for businesses. With nearly Rs 11 lakh crore allocated for capital expenditure in the Union Budget 2025, India is betting big on roads, ports, railways and green energy infrastructure. Faster project clearances and accelerated completion targets are expected to inject significant liquidity and employment into the economy.

While the immediate priority is to cushion the economy from US tariff blows, the government is also laying the foundation for sustained growth. A renewed emphasis on domestic manufacturing is already visible in sectors such as electronics, renewable energy and defence. Exports of mobile phones alone touched $15 billion in FY24, up nearly 42 per cent year-on-year, data from the Electronics and Computer Software Export Promotion Council showed.

Self-Reliance a Key Determinant

The push for self-reliance under ‘Atmanirbhar Bharat Abhiyan’ is also being reinforced through strategic trade diversification. New trade agreements with countries in the Gulf, the European Union and ASEAN nations are at advanced stages of negotiation, designed to offset any demand compression from the US. Early harvest deals with nations such as the UK and Australia have already opened new doors for Indian goods and services.

At the same time, financial regulators are tightening oversight of unsecured credit growth, which had grown at double-digit rates over the past two years. RBI’s recent directives to increase risk weights on personal loans are aimed at pre-empting a credit bubble. Simultaneously, incentives for micro, small, and medium enterprises (MSMEs) are being scaled up, as these enterprises employ nearly 110 million people and contribute around 30% to India’s GDP.

The government is also paying attention to the rural economy, which remains an important consumption driver. Boosting rural incomes through direct benefit transfers, targeted subsidies for fertilisers and enhanced allocation for rural infrastructure under the ‘Pradhan Mantri Gram Sadak Yojana’ will ensure that demand from India’s vast hinterland remains buoyant.

Middle-Class as Growth Anchor

One thing that India’s middle class has shown is resilience. Sustained, swift and smart policy corrections can remedy any situation—inflation can be cut down, interest rates eased, and incomes revived with growth stimuli. The Government’s infrastructure push has led to the emergence of job clusters in new-economy sectors and the scaling up of domestic manufacturing, creating industrial stability.

The middle-class, which contributes significantly to consumption demand, savings and tax revenues, is at the heart of this economic revival story. Data from the National Statistical Office (NSO) shows household savings dipping from 23.6 per cent of GDP in FY21 to 19.7 per cent in FY24, highlighting the urgency of policy action. Stabilising incomes and giving people confidence to spend and invest again is key to reversing this slide.

Encouragingly, headline inflation has shown signs of cooling, coming down from 7.4 per cent in mid-2023 to 5.3 per cent in recent months, according to the Ministry of Statistics and Programme Implementation. If the trend continues, the RBI may have room to consider modest rate adjustments, boosting borrowing and investment activity.

Reasserting Economic Confidence

India’s response to US tariffs is not simply reactive; it is strategic and forward-looking. By doubling down on domestic demand, bolstering manufacturing, strengthening infrastructure and stabilising the middle-class, the government is seeking to turn a global headwind into an opportunity for internal consolidation. The coming quarters will be critical, and success will depend on the sustained execution of policies, their on-ground impact and the Government’s agility in course-correcting, where required.

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If there is one constant in India’s economic journey, it is resilience—the belief that its growth story is far from over. By acting early and decisively, India is signaling to the world that it is not merely weathering the storm; it is steering through it.

The writer is a veteran journalist and communication specialist.