By finchetak.com August 26, 2025
The new tariff regime, which follows an existing 25% ad valorem duty, is projected to affect roughly two-thirds of India's $86.5 billion in exports to the U.S. According to a report by the Global Trade Research Initiative (GTRI), this could slash India's total exports to the U.S. by 43%, to an estimated $49.6 billion in the fiscal year 2026. The economic fallout could potentially reduce India's GDP growth by nearly a full percentage point.
Sectors Most Vulnerable to the Tariffs
The impact is expected to be most severe on sectors dominated by Micro, Small, and Medium Enterprises (MSMEs), which account for a substantial portion of India's exports. The most vulnerable industries include:
Textiles and Apparel: The U.S. is a major market for India's ready-made garments. With the new tariffs, Indian textile exports to the U.S. will face a duty of up to 61%. This makes them uncompetitive against rivals in Bangladesh and Vietnam, who face significantly lower tariffs.
Gems and Jewellery: The sector, with a heavy concentration of MSMEs in Surat and Mumbai, is highly exposed to the U.S. market, which accounts for about 40% of its total exports. Duties on these products have surged to 52.1%, threatening a significant number of jobs.
Shrimp and Seafood: Indian shrimp exports to the U.S. now face a total duty of 60%, including a 10% countervailing duty. This places Indian seafood exporters at a severe disadvantage against competitors like Ecuador, which is levied a much lower tariff.
Chemicals and Auto Components: While the overall impact on the auto components sector is expected to be moderate, MSMEs supplying gearbox and transmission equipment will be hit hard. The chemicals sector also faces stiff competition from countries like Japan and South Korea, which have lower tariffs.
India's Response and Future Strategy
In the face of what has been described as a "strategic shock," the Indian government has signaled a multi-pronged approach to mitigate the damage. Prime Minister Narendra Modi has vowed to support small businesses and farmers, stating that India will not compromise on its national interests.
1. Diplomatic and Political Stance: India has maintained that its oil purchases from Russia are a matter of energy security and are in the nation's best interest. External Affairs Minister S. Jaishankar has publicly defended this position, suggesting that if the U.S. objects, it can simply stop buying refined products from India.
2. Economic Measures for Exporters: The government is reportedly preparing a package of financial assistance for affected exporters. This includes reviving the Interest Equalisation Scheme to make export credit more affordable and providing special credit lines and wage support to hard-hit sectors like apparel and gems. The government is also looking to fast-track refunds under schemes like RoDTEP and RoSCTL to improve the liquidity of exporters.
3. Diversification of Markets: India is actively seeking to reduce its dependence on the U.S. market. The government has identified nearly 50 new countries to expand exports, with a particular focus on the Middle East, Latin America, and other markets where India has free trade agreements (FTAs) or can quickly scale its presence. Reports suggest a renewed focus on strengthening trade ties with China and exploring alternative transport corridors like the International North-South Transport Corridor (INSTC) to bypass traditional, Western-dominated routes.
The new tariffs represent a major challenge to India's export ambitions and its role in global supply chains. While the government has pledged to support its domestic industries, the coming months will be a test of India's economic resilience and its ability to pivot its trade strategy in a rapidly changing geopolitical landscape.
