Domestic-Driven Indian Sectors Amid Trump's Policy Shifts

The global economic landscape is being reshaped by Donald Trump's second-term policies, which blend protectionism with a relentless focus on reshoring American industry. For India, a nation long reliant on U.S. trade and investment, these shifts present both existential risks and unexpected opportunities. While tariffs on Indian exports and restrictions on H-1B visas threaten key sectors, they are simultaneously accelerating capital flows into home-grown industries. This transformation is not merely a response to adversity but a recalibration of India's economic strategy in a world where U.S. hegemony in trade is increasingly contested.

Pharmaceuticals: A Sector at the Crossroads

India's pharmaceutical industry, a cornerstone of its global trade, now faces a dual challenge. The U.S. has imposed a 25% tariff on Indian pharmaceutical exports, including bulk drugs and generics, effective August 1, 202525% tariff bomb: India's electronics, pharma, textiles to be worst hit, full list^[3]. This move, ostensibly to address the U.S.-India trade deficit of $41.18 billion in FY2525% tariff bomb: India's electronics, pharma, textiles to be worst hit, full list^[3], risks destabilizing a sector that supplies 40% of U.S. generic medicines and generated $9.8 billion in exports last fiscal yearIndia's geoeconomic playbook for Trump 2.0: Navigating trade shifts in 2025^[1]. Yet, the crisis has spurred innovation. Indian firms are expanding U.S. and Mexico-based production to bypass tariffsIndia's geoeconomic playbook for Trump 2.0: Navigating trade shifts in 2025^[1] and pivoting toward value-added combination drugs to maintain marginsFDI equity inflow into pharma sector grows to $520 million in first half of 2024-25^[5].

FDI inflows into the sector have surged, with equity investments reaching $520 million in the first half of 2024-25—a fourfold increase from the prior yearFDI equity inflow into pharma sector grows to $520 million in first half of 2024-25^[5]. This growth is driven by India's Production Linked Incentive (PLI) schemes, which have reduced import dependency and attracted foreign capital to bulk drug manufacturingIndia's geoeconomic playbook for Trump 2.0: Navigating trade shifts in 2025^[1]. While the U.S. remains a critical market, Indian pharma majors like Sun Pharmaceutical Industries are leveraging robust cash reserves to fund overseas acquisitions and diversify into complex therapies25% tariff bomb: India's electronics, pharma, textiles to be worst hit, full list^[3]. The sector's resilience lies in its ability to adapt to geopolitical headwinds while capitalizing on domestic policy reforms.

IT Services: Navigating Visa Restrictions and Market Diversification

The U.S. IT sector, which accounts for 60% of India's IT revenueIndia’s IT industry faces toughest year in decades^[4], is under siege. Trump's reiteration of H-1B visa restrictions and anti-outsourcing rhetoric has triggered a 9.5% decline in the Nifty IT index in 2025India’s IT industry faces toughest year in decades^[4], with firms like Tata Consultancy Services and Infosys reporting plummeting quarterly profits. However, the crisis has accelerated a long-term trend: the decentralization of India's IT services.

Indian IT firms are expanding Global Capability Centers (GCCs) in Africa and Latin America to buffer against U.S. protectionismIndia's geoeconomic playbook for Trump 2.0: Navigating trade shifts in 2025^[1]. Remote work models, already gaining traction, are further reducing reliance on physical presence in the U.S. Meanwhile, Trump's corporate tax cuts could paradoxically boost IT demand in India, as U.S. firms seek cost-effective solutions25% tariff bomb: India's electronics, pharma, textiles to be worst hit, full list^[3]. The sector's adaptability underscores a broader truth: while U.S. policies disrupt traditional revenue streams, they also force Indian firms to innovate and diversify.

Manufacturing: The “China Plus One” Paradox

India's manufacturing sector is both a beneficiary and a victim of Trump's trade war with China. The “China Plus One” strategy, which encourages firms to diversify supply chains beyond China, has led to a surge in investments under India's PLI schemes. With $25 billion allocated across 13 sectors, the government has attracted global giants like Apple and FoxconnIndia's geoeconomic playbook for Trump 2.0: Navigating trade shifts in 2025^[1]. Yet, Trump's 50% tariff on Indian exports threatens to undermine these gains, particularly in textiles and electronicsTrump’s 50% Tariff Threatens India’s Manufacturing Ambitions^[2].

The irony is stark: India's lower tariffs compared to China and Vietnam could give it a competitive edge in biotechnology and electronicsFDI equity inflow into pharma sector grows to $520 million in first half of 2024-25^[5], but nontariff barriers—such as quality control orders—remain a hurdleFDI equity inflow into pharma sector grows to $520 million in first half of 2024-25^[5]. To capitalize on this paradox, India must streamline its regulatory environment and reduce trade barriers. The recent focus on market diversification through the Indo-Pacific Economic Framework (IPEF) and Brics Plus initiativesIndia's geoeconomic playbook for Trump 2.0: Navigating trade shifts in 2025^[1] signals a strategic pivot away from U.S.-centric trade.

Geopolitical Implications and the Future of Capital Flows

The U.S.-India trade tussle is not merely economic; it is geopolitical. India's continued purchases of Russian oil, despite U.S. pressure, have catalyzed a shift toward non-U.S. dollar trade settlements among BRICS nations and the Shanghai Cooperation Organisation25% tariff bomb: India's electronics, pharma, textiles to be worst hit, full list^[3]. This trend, if sustained, could weaken the dollar's dominance and create new opportunities for India to leverage its strategic position in global finance.

For investors, the key takeaway is clear: capital flows into India are increasingly driven by domestic resilience rather than external demand. While U.S. protectionism poses risks, it also compels Indian industries to innovate, diversify, and strengthen their global value chains. The sectors best positioned for growth are those that align with India's PLI schemes, geopolitical agility, and capacity to adapt to a multipolar world.