Yasir Khan
For a decade and more, Narendra Modi’s government has sold its economic brand as a “transformational agenda,” a promise that India would move from managerial inscrutability to free-market confidence, from regulatory sclerosis to investment magnetism. Reality has proved far less dramatic. When tested by the harshest external shock of the post-pandemic decade–a sweeping 50 per cent tariff imposed by the United States in August 2025, among the highest duties any major economy has faced this century–India’s economic edifice did not flex; it crumbled. Far from bold structural reform, what New Delhi offered was defensive tinkering. The failure is not the tariff itself. It was always a geopolitical risk, but the Modi government’s inability to wield policy to pre-empt, manage, and neutralise such shocks.
The U.S. move was not a bureaucratic irritant. The Donald Trump administration’s decision to stack a secondary 25 per cent penalty on top of a pre-existing 25 per cent reciprocal tariff reflected deep frustration with India’s trade policy and energy choices, particularly New Delhi’s continued Russian oil imports. The cumulative 50 per cent tariff placed India in a league with countries under outright economic sanctions, imperilling export competitiveness in labour-intensive sectors that account for large swaths of middle-class livelihoods. This was the acid test of the Modi economic narrative, and India failed.
The tariff crisis was not merely a geopolitical rupture but a reflection of deeper economic weaknesses. Rather than offering an unequivocal vision of liberalisation and market openness, Modi’s India responded with half-measures and incrementalism. GST reforms, announced in late 2025 with a simplified slab structure and rate cuts, were sold domestically as a big win; in truth, they were reactive, calibrated to cushion the tariff blow, not to overhaul a complex tax system that has confused businesses for years.
Reform cheerleaders will point to this GST 2.0 as evidence of progress. But this is reform as damage control, a retrofitted policy designed to prop up consumption, not to reinvent the underlying supply-side architecture of India’s economy. The government’s own economic advisers admitted that the overall GDP drag from U.S. tariffs might only be partly offset by tax adjustments, leaving growth closer to the low-6 per cent band rather than surging toward aspirational 7-8 per cent targets.
Across arguably every major vector – labour law modernisation, financial sector reform, power sector restructuring, privatisation of loss-making public enterprises – the pattern is the same: promises, delays, and partial packages that stop short of transforming incentives or dismantling entrenched interest group barriers. Labour reforms, for all the rhetoric, never took the decisive step toward making India a genuinely competitive manufacturing destination. Privatisation agendas bogged down in political compromise rather than structural reallocation. Power utilities remain mired in fiscal distress, dragging on state finances and crowding out productive investment. These are not incidental frustrations; they are foundational weaknesses that have been papered over by headline GDP numbers and consumption-led growth. Wall Street Journal commentary has repeatedly noted that Modi’s economic strategy has relied on visual tweaks rather than a comprehensive recalibration of institutional frameworks.
The tariff shock exposed what many international economists have long cautioned: India’s regulated economic model, far from being an engine of friction-free growth, is brittle. A sustained 50 per cent tariff could trim India’s GDP by up to a full percentage point over time, with disproportionate effects on employment in export sectors that are already struggling to absorb India’s demographic dividend. There is a bitter irony here. The Modi era began with grand promises of breaking India’s middle-income trap by unleashing private enterprise and foreign investment. Instead, India’s average trade-weighted tariff remained high compared to peers before the US penalties were imposed, undermining the credibility of India as a liberalising market.
The narrative du jour in Islamabad, of economic resilience amid turbulence, can blind policymakers to the deeper need for structural reform. India’s experience – a government that relied on protective cushions and gradualism – demonstrates that growth can be derailed not by global conditions alone but by the absence of credible reform architecture. The argument is not anti-India. It is a critique of policy incoherence at scale – a reminder that ambition without follow-through breeds vulnerability. Modi’s failure on reform is not the failure of India; it is a failure to align political capital with economic necessity at precisely the moment the world’s most populous nation needed it most.
The writer is a freelance columnist.
