India on a tightrope of trade between farmers, factories, US tariff threat

India stands at an economic crossroads as US President Donald Trump’s looming 50% tariffs threaten to upend trade flows that underpin both its agricultural and manufacturing sectors.

As a Bloomberg report points out, Prime Minister Narendra Modi has drawn a line in the sand: protecting farmers, livestock producers, and fisherfolk at all costs. While politically popular, this commitment may mask deeper vulnerabilities in India’s economic fabric, exposing a tension between protecting traditional constituencies and sustaining global competitiveness.

Nearly half of India’s workforce is tied to agriculture, a dependence that has only deepened since the pandemic. Farmers have long been celebrated for making India self-sufficient in food and dairy, even under severe resource constraints.

This political reality makes it nearly impossible for Modi to compromise, as any perceived betrayal could carry substantial electoral costs. Yet the same rhetoric that champions the farmer does little to address the broader economic fallout from a trade war with the United States.

The impact is already evident. International apparel buyers are canceling or suspending orders in anticipation of punitive tariffs, threatening the livelihoods of millions working in India’s garment sector.

Tamil Nadu alone, a hub for textile exports, supports 1.25 million paychecks. In this scenario, shielding cotton farmers from foreign competition may paradoxically harm them by shrinking demand for the very fiber that drives India’s domestic textile industry. Comparatively, Pakistan has navigated Trump’s trade tactics more pragmatically, importing U.S. cotton duty-free to sustain both its agricultural and manufacturing sectors.

India’s tariff regime on raw materials like cotton — currently 11% — further complicates the picture. Domestic cotton production has hit a 15-year low, even as state agencies purchase nearly half of the output at guaranteed minimum prices.

High tariffs inflate input costs for textile exporters, undermining their global competitiveness. Similar challenges extend across other agricultural commodities: poultry producers grapple with costly feed, and most crop prices remain well above international levels. Meanwhile, subsidies and market interventions primarily benefit middlemen rather than farmers, leaving yields stagnant and incomes volatile.

This scenario underscores a deeper structural issue: India’s vast population of smallholder farmers, nearly 126 million strong, earns meager incomes from crops and relies on landholding for food security. Industrial and urban alternatives remain limited, trapping labor in low-productivity farming. Government interventions, from minimum price schemes to free food distribution for 800 million people, absorb enormous fiscal resources, exceeding $100 billion during the pandemic. A prolonged tariff-induced disruption could amplify this fiscal strain.

In this light, Modi’s political calculus clashes with economic pragmatism. Four years ago, an attempt to liberalise farm pricing was abandoned under pressure, and current resistance to Trump’s tariffs may represent another politically motivated misstep. 

Rather than leveraging the crisis to reform agriculture or boost manufacturing, India risks entrenching inefficiencies while antagonizing global markets. Economics, in this instance, may be taking a backseat to politics, with uncertain consequences for both farmers and the broader economy.

By Sabina Mammadli