India, Sept. 3 -- The gross domestic product (GDP) growth for the June quarter of the current fiscal year paints a rosy picture at first glance - coming in at an impressive 7.8%, it comfortably beats expectations. But beneath the headline number lies a sobering reality: This is largely a statistical illusion, flattered by an unusually low deflator rather than a surge in the nominal output. Nominal GDP grew only 8.8%, well below trend, which will make meeting tax collection targets harder and strain debt sustainability dynamics.. The real test of India's economic resilience will come later in the year as punitive US tariffs on exports take hold. US President Donald Trump's 50% tariff on exports from India to the US - the steepest against any Asian economy - is India's most severe trade shock in decades. Even after exemptions, the effective rate is close to 33%; this could rise if tariffs are slapped on pharmaceuticals and electronics after the ongoing review. Analysts estimate the tariffs could shave off 20-50 basis points from annual GDP growth, threatening momentum at a time India is vying to position itself as a China+1 manufacturing hub. The first-quarter growth surge reflects pent-up investment and consumption, buoyed by frontloaded government spending and exports rushed to the US to beat the tariff deadline. But nominal growth is already slowing, and exporters face rising input costs and weak global demand. The US tariffs will deepen this squeeze, eroding margins and pricing power, particularly in labour-intensive sectors. The worst-hit will be the MSME clusters in states producing textiles, leather, auto components, gems and jewellery. These sectors employ millions and form the backbone of local economies. As buyers shift sourcing strategies, job losses and weaker consumption will follow. The first-quarter growth buoyancy could look more like an aberration than a new baseline. Diversifying export markets is an imperative, but it will not be easy. China, also hit with steep US tariffs, will likely dump goods globally to sustain its factory output. That means fiercer competition and thinner margins for India in non-US export markets where we have to contend with China. Without fast-tracked trade agreements with Europe, the UK, and Asean, diversification will be slow and incomplete. There is an argument that India should retaliate to "send a message." But such a move would likely backfire. India imports many raw materials and intermediate goods that are essential for manufacturing exports. Raising duties would drive up costs, weaken competitiveness, and slow export growth further. Retaliation may provide political theatre, but would be economically self-defeating. Instead, India should negotiate from a position of confidence. While the trade relationship is asymmetric, it is not one-sided. Factoring in education, royalties, financial services, and arms sales, the US quietly runs a surplus with India. Indian students contribute significantly to US universities. India's leverage lies in its vast market, service exports, and role in global supply chains. This is a moment for pragmatic diplomacy, not brinkmanship. The tariffs are a stress test for India's post-pandemic economic model. For all the rhetoric of Atmanirbhar Bharat, resilience cannot mean isolation. True self-reliance is about building scale and capacity in critical sectors, not seeking self-sufficiency in all goods. India must play to its comparative advantages while working to sharpen them. IT services and pharmaceuticals remain natural strengths, while renewable energy, chemicals, textiles, and auto components can be upscaled and upgraded. Industrial policy should focus on predictability, competitiveness, and tariff rationalisation, avoiding protectionism for its own sake. Comparative advantage is dynamic, not static. South Korea and Taiwan built global dominance by specialising and steadily moving up the value chain. India needs a similar strategy to become a credible alternative to China. The government has moved quickly to cushion the blow through GST rationalisation. A good monsoon and the income tax cuts offered earlier in the budget will support demand. But, more targeted measures are needed - liquidity support for MSMEs, faster trade facilitation, and regulatory stability to reassure global investors. The Reserve Bank of India has signalled caution as tariffs risk pushing up prices through higher import costs and rupee pressures. As room for monetary easing is limited, much of the heavy lifting has to be done by fiscal policy. But any expansion must be balanced against India's fiscal consolidation roadmap, especially with slowing nominal GDP growth threatening tax buoyancy and debt dynamics. It is possible that even with the tariffs, the economy will grow around 6.5% this year. But the growth narrative requires nuance. Tariffs will ripple through not just goods exports but also logistics, shipping, and services tied to trade flows. Investor sentiment is already sensitive to US political rhetoric, which has turned sharply combative. India's response should be strategic, not emotional. This is an opportunity to accelerate reforms, fast-track free trade agreements, and focus resources on sectors where India has global potential. The first quarter GDP surge is yesterday's story; the real picture will emerge later in the year. Growth will slow, exporters will face tougher competition, and pressure on jobs will intensify. But this is also a pivotal moment. India can use this shock to sharpen its strengths, move faster on reforms, and integrate deeper into global supply chains. Tariffs are a challenge, but they are also a wake-up call: India's path to resilience lies in competitiveness, scale, and outward engagement, not protectionism. If handled with discipline and pragmatism, this moment of stress can be transformed into a springboard for sustained, inclusive growth....