U.S. President Donald Trump’s steep 50% tariffs on Indian goods have officially taken effect, weeks after he issued an executive order imposing an additional 25% penalty on New Delhi over its purchases of Russian oil and weapons.

The move places India — one of Washington’s strongest partners in the Indo-Pacific — among the countries facing the highest U.S. tariffs in the world. Analysts warn the measures could deal a major blow to exports and growth in the world’s fifth-largest economy, where the United States was, until recently, its biggest trading partner.

The Indian government has since scrambled to cushion the fallout. Earlier this month, Prime Minister Narendra Modi pledged sweeping tax relief to ease the economic burden, describing it as a Diwali gift in the form of a “massive tax bonanza” for ordinary citizens and small businesses.

During Independence Day celebrations at Delhi’s Red Fort, wearing a saffron turban, Modi urged shop owners to display “Swadeshi” or “Made in India” signs. “We should become self-reliant — not out of desperation, but out of pride,” he said. “Economic selfishness is on the rise globally and we mustn’t sit and cry about our difficulties, we must rise above and not allow others to hold us in their clutches.”

In addition to personal income tax reductions worth $12 billion announced earlier this year, Modi’s government has unveiled plans to overhaul India’s goods and services tax (GST). The finance ministry has proposed a simplified two-tier system expected to unlock about $20 billion in additional consumer spending.

Analysts say the tax relief could soften the blow from Trump’s tariffs by boosting domestic demand. U.S. brokerage firm Jefferies noted that GST reforms, combined with income tax cuts, “should together provide a meaningful push to consumption.”

Consumer demand makes up nearly 60% of India’s GDP. Economists at Morgan Stanley argue Modi’s fiscal stimulus will spur growth while easing inflationary pressure, calling it “particularly crucial amid headwinds from ongoing global geopolitical tensions and adverse global tariff-related developments.”

Sectors likely to benefit include two-wheelers, small cars, garments, cement, and other consumer goods where demand traditionally rises around Diwali. UBS analysts added that GST cuts could have a stronger “multiplier effect” than previous corporate or income tax reductions, as they directly lower costs at the point of purchase.

Meanwhile, India’s stock markets have welcomed the announcements, and S&P Global recently upgraded the country’s sovereign credit rating for the first time in 18 years. The upgrade could lower borrowing costs and attract more foreign investment, even as growth slows from earlier highs of 8%.

But tensions with Washington remain unresolved. Trade talks scheduled to begin last week were suspended, and the war of words over India’s energy purchases from Russia has only deepened.

At 50%, experts say, Trump’s tariff wall amounts to a near-sanction on trade between the world’s largest and fastest-growing major economies — a rupture that would have seemed unimaginable just months ago.