| The week started out for India with a market recovery and trade optimism, but that was quickly followed with bloodshed on the border — a grim reminder of the tough challenges facing the world’s fifth-largest economy. India is grieving the deaths of 26 people in a terror attack on a popular tourist spot in Kashmir, one of the worst attacks on civilians in the South Asian nation in years and the third big intelligence failure after Pulwama and Galwan . Noting the terror attack had “cross-border linkages,” the Modi government downgraded ties with Pakistan and suspended a river water-sharing pact. Pakistan is reported to have opposed any unilateral action on the treaty. India’s response to the attack has been “measured,” former diplomat Nirupama Menon Rao said on social media. The folks at Bloomberg Intelligence are not ruling out “targeted strikes on suspected terrorist infrastructure in Pakistan-administered territory.” The timing of this flare-up is no coincidence. The tourists were gunned down in an otherwise picturesque Himalayan meadow moments before US Vice President JD Vance, on his first-ever trip to India, spoke in Jaipur.  Security personnel inspect the site in the aftermath of the attack in Pahalgam on April 23, 2025. Photographer: Tauseef Mustafa/AFP After months of Trump beating the “tariff king” stick against India, his deputy arrived here with a carrot — the promise of a century-shaping India-US partnership. Unlike his broadside against Europe in February, Vance was far more flattering of India in his speech on Tuesday, presumably with the hope of softening up Indians to make significant trade concessions. Prime Minister Modi is a “tough negotiator” with “approval ratings that would make me jealous,” Vance said, while describing Indians as having “vitality,” “a sense of infinite possibility” and “pride.” The two countries finalized terms of reference for a trade deal though no specific details were made public. If India needs to placate the US, its biggest export market and key defense partner, the Trump administration needs a win, fast, that so far doesn’t seem likely with Japan or even South Korea. Vance, accompanied by his wife Usha and children in Indian attire, hit the right hard and soft diplomatic notes to make that happen with India.  JD Vance with his family at the Taj Mahal on April 23. Source: JD Vance on X And so in the fog of trade and terror, the week leaves us with four economic questions to ponder over. Can India please the US without peeving China? This week China warned nations not to cut US deals at its expense. That may be aimed more at those America refers to as conduit nations — like Vietnam and Cambodia — but India can’t expect to be spared. Especially if it allows more imports from the US, say of Tesla cars (Musk spoke to Modi last week), while keeping out China’s BYD. It’s an already-fraught relationship marked by an ongoing border dispute that’s resulted in two wars, multiple skirmishes and an uneasy détente. China, besides its more powerful and advanced military, also has significant economic leverage over India that it’s reportedly been using in recent months. India relies on key capital and intermediate good imports from China (to produce iPhones, solar cells) even as it levies anti-dumping duties on some Chinese exports like steel products and certain chemicals. The Modi government also remains in a quandary over whether to lift curbs on Chinese investment to make up for ebbing flows from the US. How will India open up (for more imports) without shutting down (local players)?
Take for instance the automobile industry, where duty concessions to the US for some products, such as premium Harley-Davidson bikes, will have limited impact, but sector-wide adjustments could seriously hurt local industry. Or in agriculture, where allowing American corn or cotton exports could disrupt local farming output and price dynamics. Trade exceptions for the US will also influence expectations of other partners India is negotiating treaties with, like the EU and UK. What happens to India’s economic growth? Despite a proactive central bank and prospects of continued monetary easing, at least one estimate puts India’s GDP growth at below 6% this fiscal on account of the direct tariff hit and a slowing world economy. The IMF just cut its global growth forecast to 2.8% from an earlier 3.3%. Indian economists say the next few quarters will be impacted by opposing forces — higher exports to beat the tariff deadline versus lower private consumption and corporate investment due to all the uncertainty. As for the longer-term impact, there are as many different views as economists. India can “seize the moment” through reform, deregulation and further integration into global value chains, Sajjid Chinoy, Head of Asia Economics at JP Morgan, wrote in a column this week. His colleague Jahangir Aziz, chief emerging markets economist at JP Morgan, says India’s aim of becoming a global manufacturing hub will need to be trimmed. Instead, domestic demand will need to become the biggest driver of growth, Aziz wrote in a separate column. Both approaches require structural change. What does this mean for Indian markets? That’s an easier question to answer this week, what with foreign investors turning more positive on India after a record exodus last year. Indian stocks and bonds will fare better than peers, according to Franklin Templeton, who joins other global money managers in touting the country as a bright spot. Some like Permira are making a full pivot to India. In the midst of all this volatility, there is only one determinedly good piece of news — the forecast of a plentiful monsoon. I hope this time when it rains, it pours...in a good way. | 
