Welcome to India Edition, I’m Menaka Doshi. Join me each week for a ringside view of the billionaires, businesses and policy decisions behind India’s rise as an emerging economic powerhouse.

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This week: With no India-US trade deal in sight, Trump threatens India with tariff blow — that may burnish Modi’s tough negotiator image but will hurt India’s economy.

Also, Ambani’s pumping cash into his financial services business and Sarvam’s Vivek Raghavan tells me AI sovereignty is just months away.

Staring Match

The stalemate over the US-India trade deal is, well, not about trade. It’s about power. And for now India’s Prime Minister Narendra Modi seems to have been outgunned by his once-favorite strongman. 

With a day to go for US reciprocal tariffs to kick in and deal talks still ongoing, President Donald Trump has announced a a 25% levy on all imports from India with an additional as-yet-undisclosed penalty due to oil purchases from Russia.

The Russia twist is a reminder that this is Trump’s game and his rules. Even as India’s resisting US access to sensitive sectors like agriculture, Trump has added new restrictions on Russian oil and defense purchases to the mix. And he is using trade to chip at India’s ties with Russia and get President Vladimir Putin to reach a truce with Ukraine.

Trump likes tariffs and he uses them for all manner of problems, including as a threat to get better deals, Deborah Elms, head of trade policy at the Hinrich Foundation, said to me on Wednesday. 

This just might be a negotiating ploy, international trade policy expert Abhijit Das said to me early this morning. Trump indulges in such stratagems to skew the deal in his favor and to hasten conclusion of a deal, most of which have been hopelessly one-sided, he said. Unless Trump moderates his demands or India relents on some of its red lines, it would be difficult to see a deal emerging within the next few days, Das added.

Ploy or not, the president’s tariff proclamation in a social media post has prompted economists to lower India’s GDP growth estimates by up to 30 basis points, weakened the rupee and sent stocks lower. But it hasn’t altered Modi’s intransigence.

While India remains committed to concluding a fair trade agreement, the government attaches utmost importance to protecting and promoting the welfare of farmers, entrepreneurs and small enterprises, it said in a statement Wednesday night, hours after Trump’s tariff announcement.

The position has political currency. Bully Trump, strong Modi is the general mood among Indians on social media. And among Indian trade experts.

“India’s principled stand has avoided the trap of a one-sided deal and that’s a success,” Ajay Srivastava, former trade official and founder of the Global Trade Research Initiative, said in emailed comments.

He argues that India did not walk away from the deal. It negotiated in good faith, but refused to cross its red lines — particularly on agriculture, where over 700 million livelihoods are at stake.  And, he said, India is not significantly worse off than economies like the UK (10%), EU (15%), Indonesia (19%) and Vietnam (20%), who signed deals with the US, made sweeping concessions and still face elevated tariffs. An India-US deal “may still emerge, but only on fair terms,” according to Srivastava.

Well, that’s the glass-half-full version. Now let’s look at the glass-half-empty one.

The US is India’s largest trading partner, biggest export market for goods and services, largest source of foreign portfolio investment and third-largest source of foreign direct investment. India doesn’t even rank among the US’s top 10 trading partners. That, some might say, gives Trump more bargaining leverage than Modi.

In labor intensive industries like electronics, apparel, footwear and gems and jewelry, Indian exports to the US face stiff competition from China, Vietnam, Indonesia, Mexico – countries with lower costs or lower US tariffs. Modi’s Apple economy dream hangs in the balance.

Then, there are regional security concerns, not helped by Trump’s wooing of China and lunching with the Pakistan army chief.

Yet, Das doesn’t think that India should back down. Once the US starts playing hardball, countering it with a soft hand has not worked in the past, he said, recalling his experience as a trade negotiator. Only when the government threatens to or takes retaliatory action does the US relent, he added. Though in this Trump term that approach hasn’t worked for any country except maybe China.

It would be a real game-changer for both the US and India to reach a deal with lower levies, particularly in beginning to neutralize the long-term challenges of China as exporter to the world, said Mark Linscott, former US trade negotiator and senior advisor for trade policy at the US-India Strategic Partnership Forum. The US can build new supply chains through India, giving the South Asian nation opportunity to expand its export base, continue to attract FDI and increase its economic and employment growth trajectory. 

“If there’s any chance of a deal with India, it will likely require direct engagement between President Trump and Prime Minister Modi,” he said.

And for one of them to blink.

Who are you betting on? Send me your trade views at indiaedition@bloomberg.net.

Best of Bloomberg

Trump’s tariff on India will hurt these sectors the most. And market experts fear it may deepen the $248 billion India stock rout. Follow Bloomberg’s live blog for all the developments.

Meanwhile, the US struck a 15% tariff deal with South Korea and reached agreements with Thailand and Cambodia.

In other news, the Federal Reserve held interest rates steady for a fifth consecutive time even as US economic growth moderated.

In India, a fundraising rush sees 40 firms, led by banks, announce plans to raise more than $9.2 billion via share sales to institutional investors. 

Tata Motors is set to acquire Turin-based Iveco’s commercial trucks and buses business for €3.8 billion. 

China’s new $167 billion megadam carries big risks. Listen to me chat with Bloomberg’s Dan Murtaugh on the Big Take Asia podcast.   

By the Numbers: The Ambani Playbook

On the Spot: Raghavan on AI Sovereignty

India is months away from a sovereign AI model that will be much smaller in information scale than ChatGPT andDeepSeek, but also cheaper to develop and use. 

Bengaluru-based startup Sarvam — often described as India’s OpenAI — won a government mandate to build an open source, 120-billion-parameter large language model. The intent is to build an LLM that’s fluent in Indian languages, strong at math, reasoning, programming and able to process voice and images, Sarvam Co-Founder Vivek Raghavan said to me.

If Raghavan succeeds at his current mission he will earn the rare distinction of having helped build two nation-critical projects in India. In 2010, he quit a design tech job and volunteered at the government-led Unique Identification Authority of India to build Aadhaar, a biometrics-based identity number that covers over 1.3 billion Indians. Thirteen years later, Raghavan co-founded Sarvam. 

“When I first quit my job and joined Aadhaar, I was the youngest in my class to retire, and now if I’m going to do Sarvam for 10 more years, I’ll be the oldest in my class to retire,” he joked when I asked about his penchant for public projects. Commissioned in April, a first version of the sovereign AI foundational model is expected to be ready for deployment by year end, he said.

Vivek Raghavan, co-founder, Sarvam Source: Sarvam

Why do we need a sovereign foundational model?

We don’t want a dependency on a global model for something so important. This is a very fundamental technology, that if we don’t actually become part of it, if we don’t play in this game, we will probably forever become a digital property tenant. Those are the stakes. We should leverage and use the frontier models, but at the same time we need to have a sovereign model. Just as an example, India has the largest number of free ChatGPT users. That means we are giving the maximum amount of data to OpenAI. That means, in addition to having the capital, they also have the data, which is the other thing that drives AI. So dependency is one reason.

Localization is the other reason. Their models don’t reflect India, its many languages, the dialectics. We should also look at the fact that India is a voice-first country. We like to talk and AI in India will be kind of voice first. In fact, if you are digital, typing in most Indian languages is not the easiest thing to do. So I think that voice will be the interface. That’s our belief.

Of course, India is also a cost-sensitive country. So some of those things are important when we look at building AI for India. Some trends are in our favor. Some things, compared to even two years ago, are much more efficient. The models run faster, they are better and cheaper. And many of the workhorse models that people use are not that big and can provide great value.

Isn’t India very far behind the US and China?

It will take us five years to become a fraction of what the American ecosystem is. If we want to be a global leader in AI then we need to look at very different things. But, if you take this problem and look at it differently, such as how to use AI to make people’s lives better, that doesn’t need as much investment because things are getting better much faster.

If ChatGPT is a sports car and DeepSeek a speedy sedan, what would India’s AI model be? 

I think our intent is to be as globally close to the state-of-the-art as exists. It’s a moving target because the state-of-the-art keeps changing every two weeks. The interesting thing is we are training multiscale foundation models. There’ll be large models and there will be medium-sized models and there’ll be small ones. So in that case, it will be everything from a scooter to a sedan.

How will you measure its success?

That’s based on how many people are able to use it and what are the population scale applications in which the model is being used. That is the true determinant. Because you can even build a great model at one point in time but if you’re not able to get usage in a big scale, then you can't maintain that edge over time.

What’s the project cost and scope for monetization?

The government has granted us 4,000 GPUs (graphics processing unit) over a period of six months. It’s not quite a grant as the government will be investing in the company equivalent to that. The value of 4,000 GPUs is estimated at $25 million dollars. We are spending on the people resources. We’ve put together a very strong team of about 30 people to build this. 

We are obviously building something that we believe will be widely used. Generative AI has a deeply deflationary effect. If it makes things cheaper and more efficient, value will happen.

What’s the one challenge you are most concerned about?

This is an extremely powerful technology and and we have to figure out how to make sure that whatever we are doing is ethical. The interesting thing is that the technology is movin