The recent imposition of a 25% reciprocal tariff by the United States on Indian exports has raised serious concerns across several sectors of the Indian exporters. Effective August 7, 2025, the new tariff comes as part of the Trump administration’s broader trade recalibration, and could deal a heavy blow to India’s export competitiveness, especially in sectors like textiles, gems and jewellery, pharmaceuticals, and auto components.
Tariff Shock: What Changed?
On August 1, 2025, the United States announced a steep 25% tariff on Indian goods under a new executive order. This is in addition to existing sector-specific duties, such as the 6–9% already imposed on textiles. For many goods, the cumulative tariff now reaches between 31% and 34%, making Indian exports far more expensive than those from competitors like Vietnam and Bangladesh, which face average U.S. duties of around 20%.
The Indian government has been given the option to negotiate exemptions. However, until such discussions bear fruit, exporters are expected to shoulder the burden to retain their market presence in the U.S.
Sector-Wise Impact: Margin Pressures Mount
Textiles and Apparel
India’s textile exports to the U.S., valued at approximately $10.7 billion, are among the most vulnerable. Margins in this industry are already thin—ranging from 5% on volume products to 20% on fashion-focused segments. With U.S. buyers reluctant to absorb price increases, Indian exporters are being forced to offer discounts, severely compressing profit margins. Key textile hubs like Tiruppur and Coimbatore may face significant disruption, including job losses and factory slowdowns.
Gems and Jewellery
India is the world’s largest processor of cut and polished diamonds, much of which is exported to the U.S. A 25% tariff in this sector could lead to a 20–25% drop in export volumes, affecting not just exporters but also miners and retailers globally. For many diamond processors in Surat and Mumbai, the financial strain may be difficult to withstand.
Pharmaceuticals
India exports around $9 billion worth of pharmaceutical products to the U.S., which accounts for nearly 30% of its pharma exports. While the sector is relatively resilient due to regulatory necessities and product quality, the new tariff could still lead to an earnings decline of 2–17% for major firms like Sun Pharma and Dr. Reddy’s. Nonetheless, industry experts maintain that the long-term trajectory of Indian pharma remains strong.
Auto Components, Capital Goods, and Chemicals
These sectors, though with moderate exposure to the U.S. market, are still expected to feel the pinch. Companies like Bharat Forge, KEI Industries, and Navin Fluorine may experience reduced export competitiveness and margin erosion as a result of the added cost burdens.
Oil Refining Sector
A parallel concern arises from the U.S.’s increased scrutiny of Russian oil imports. India currently sources about 35% of its crude from Russia. If U.S. penalties limit this trade, India’s oil import bill could rise by $9–11 billion, significantly cutting into gross refining margins for major public and private refiners.
Electronics and Future Uncertainty
Though current smartphone and electronic exports are not subject to new tariffs, industry insiders warn that a 25% levy may be introduced. If that happens, it would be a major setback to India’s ambitions under its Production Linked Incentive (PLI) scheme, aimed at boosting domestic electronics manufacturing.
Economic Impact: Not Just a Sectoral Issue
According to estimates by Barclays and Emkay, the tariffs could reduce India’s export revenue by nearly $30–33 billion. That translates to a potential hit of 0.8–0.9% of GDP. CLSA, another financial services firm, projects that the impact on GDP could be between 25 to 40 basis points if the issue remains unresolved.
This tariff shock adds to an already fragile global trade environment, where countries are resorting to protectionism and unilateral actions.
Cushioning the Blow: Is India Prepared?
Despite the sharp policy turn by the U.S., analysts believe the Indian economy is equipped with certain buffers. India’s domestic consumption contributes nearly 80% of its GDP, offering some insulation from external shocks. Analysts at Bank of Baroda and other institutions consider the tariff more of a “headline risk” rather than a structural threat, especially given India’s efforts to diversify its export markets and boost domestic manufacturing.
Some Indian exporters are considering absorbing part of the tariff to retain long-term relationships with American buyers. Others are exploring alternative markets in Europe, the Middle East, and Southeast Asia to reduce reliance on the U.S. Exporters have also called for policy support from the Indian government in the form of expanded rebate schemes and sector-specific incentives.
Looking Ahead
Trade talks between India and the U.S. are expected to take place in mid-August. The outcome of these negotiations will be crucial in determining whether India can secure a rollback or reduction in tariffs. In the meantime, exporters must navigate a difficult landscape where maintaining market share may come at the cost of profitability.
The broader message is clear: while Indian exporters are facing immediate pain from these tariffs, the long-term strategy must focus on building resilience, deepening domestic value chains, and reducing over-dependence on a single export market.
