The United States’ new tariff regime, effective August 27, 2025, marks one of the most severe trade shocks India has faced in recent years. With over two-thirds of India’s $86.5 billion exports to the US now subject to prohibitive 25–50% duties, critical labour-intensive sectors such as textiles, gems & jewellery, shrimp, carpets, and furniture face sharp declines in competitiveness and employment. GTRI has prepared a report to examine the scale and distribution of the impact across sectors, the potential GDP implications, and the strategic responses required to ensure that India’s growth trajectory remains intact despite this external disruption. India’s exports to the US are set to fall steeply—from $86.5 billion in 2024-25 to about $49.6 billion in 2025-26—due to Washington’s new tariff regime. While 30% of exports ($27.6 billion) will remain duty-free and 4% ($3.4 billion, mainly auto parts) will face a 25% tariff, the bulk—66% ($60.2 billion) covering apparel, textiles, gems & jewellery, shrimp, carpets, and furniture—will be hit with a 50% tariff, rendering them uncompetitive. Exports from these sectors could plunge 70%, dropping to $18.6 billion, causing an overall 43% decline in shipments to the US and endangering hundreds of thousands of jobs. This is a strategic shock that threatens India’s long-standing foothold in US labour-intensive markets, risks mass unemployment in export hubs, and could weaken India’s participation in global value chains. Competitors like China, Vietnam, Mexico, Turkey, and even Pakistan, Nepal, Guatemala, and Kenya stand to gain, potentially locking India out of key markets even after tariffs are rolled back. Despite US losses, India’s global trade momentum stays positive. Goods exports (excluding the US) are projected to grow 5%, rising from $350.9 billion in 2024-25 to $368.5 billion in 2025-26. More significantly, services exports—India’s standout strength—are expected to jump 10%, from $383.5 billion to $421.9 billion, led by IT, business services, fintech, and healthcare. Combining goods and services, total exports are set to increase from $820.9 billion in 2024-25 to $839.9 billion in 2025-26—a 2.3% overall gain despite heavy US headwinds. This underscores India’s diversification, resilience, and growing reliance on services, proving that while American tariffs hurt, India’s export engine is slowed—not derailed. India’s nominal GDP was $4,270 billion in 2024-25 and is expected to grow at 6.5% in 2025-26 under normal conditions. However, the $36.9 billion export loss to the US lowers the 2024-25 base to $4,233.1 billion. At 6.5% growth on this adjusted base, 2025-26 GDP would reach $4,508.25 billion, implying an effective growth rate of 5.6%—a 0.9 percentage point drop. This is a worst-case scenario. With tax reforms, ease-of-business measures, and aggressive export diversification, India can offset the shortfall and sustain robust growth. While the new US tariffs will dent labour-intensive sectors like textiles, jewellery, shrimp, carpets, and furniture, most Indian firms can redirect exports to other markets and tap a growing domestic economy. With exports forming only 20% of GDP (compared to 90% for Vietnam), India’s growth is less vulnerable to external shocks. The government’s ongoing taxation and business reforms further enhance competitiveness, reduce costs, and position India to seize opportunities in new global markets. To mitigate this impact and position India for resilience and growth, the government should immediately roll out support measures for affected sectors. Reinstate Interest Equalisation Scheme with a ₹15,000 crore annual outlay and a 5-year commitment for all exporters. The earlier ₹2,500 crore version delivered strong competitiveness gains—reviving it now would provide MSMEs with predictable, low-cost export credit when high interest rates are eroding margins. Introduce targeted credit lines for shrimp, apparel, jewellery, handicrafts, carpets, and other highly impacted industries to prevent mass layoffs and closures. Export incentive schemes such as RoDTEP and ROSCTL should be temporarily enhanced to support liquidity, while wage-support programs should be introduced for workers in key hubs like Tiruppur, Surat, Bhadohi, and Jodhpur to cushion employment losses. At the same time, the government must accelerate market diversification and lead sector-specific trade missions for shrimp, apparel, jewellery, and handicrafts to alternative markets. Establishing bonded manufacturing zones and “India+1” export hubs in the UAE, Mexico, and Africa will also help bypass high US tariffs. Domestic competitiveness needs urgent strengthening through technology and quality upgradation funds for apparel, gems, and agro-processing, along with improved infrastructure such as coastal cold-chain facilities, integrated textile parks, and plug-and-play facilities for jewellery and leather clusters. Simplified regulatory processes and rationalised duties on critical raw materials like cotton, leather, and gem inputs will further reduce costs. Industry too must adapt quickly by diversifying markets beyond the US and focusing on value-added products such as high-end fashion apparel for the EU, certified sustainable seafood for Japan, and designer jewellery for Gulf markets. MSMEs should collaborate through export consortia to pool resources for marketing, compliance, and R&D, while larger firms should consider joint ventures or contract manufacturing in FTA-partner countries like the UAE, Ethiopia, Kenya, and Mexico to retain access to major markets. Greater investment in e-commerce platforms and global B2B portals will reduce dependence on large US buyers, and adopting sustainability certifications such as carbon-neutral textiles, sustainable seafood, and fair-trade handicrafts will help gain premium access in high-value destinations. Strategically, India must use this moment to shift from a volume-driven to a value-driven export model, focusing on high-value manufacturing like electronics, machinery, and advanced textiles while integrating services such as design, branding, and after-sales. Reducing reliance on imported inputs by building domestic capabilities and leveraging India’s global role through G20, BRICS, and WTO to challenge unfair tariffs will also strengthen its long-term position. While the US tariffs pose a serious short-term challenge, they can serve as a catalyst for transforming India into a more diversified, resilient, and globally competitive export powerhouse. The US tariffs present a formidable challenge, but not an insurmountable one. India’s large domestic market, robust services sector, and expanding trade partnerships offer strong buffers against external shocks. With swift policy action—ranging from emergency sectoral support and accelerated FTAs to deep reforms in manufacturing competitiveness—India can turn this crisis into an opportunity to diversify exports, strengthen its economic foundations, and emerge as a more resilient global trading power. The road ahead demands urgency, innovation, and sustained effort—but India has the capacity to weather this storm and secure long-term growth. Tariff-wise Impact 1) Least Impact About 30% of India’s exports ($27.6 billion) will continue to enter the US market duty-free. Major product categories (with India’s exports to US) are: Pharmaceuticals ($12.7 billion) — from cancer drugs and immunosuppressives to cardiovascular, antidiabetic, and pain medicines. APIs etc ($2.72 billion) — including active pharmaceutical ingredients, intermediates, sulfamethoxazole, and synthetic melatonin. Together, API and Pharma make up 56% of all exempt exports from India. Electronics ($8.18 billion), spanning smartphones, switching and routing gear, integrated circuits, unmounted chips, wafers for diodes, and solid-state storage devices. Refined light oil, gasoline, and aviation turbine fuel ($3.29 billion) — such as refined light oil, gasoline, and aviation turbine fuel. Books, brochures ($165.9 million) Plastics ($155.1 million) — ptfe, cellulose ethers. Ferromanganese, ferrosilicon manganese, ferrochromium ($101.1 million) Computing gear ($94.4 million) — motherboards, rack servers. Unwrought antimony, nickel, zinc, chromium, tungsten ($54.1 million) Platinum, palladium, gold dore, gold coins ($23.5 million) Technically specified natural rubber ($5.1 million) Coral, echinoderms, cuttlebone ($0.4 million) . 2-Products with Tariff @25% India’s auto component exports to the US totaled $6.6 billion in 2024. Of this, $3.4 billion—mainly parts for cars and small trucks—will be face a 25% tariff, while the rest will be hit by full 50% tariff. 3-Products with Tariff @50% The overwhelming majority, 66.0% of India’s exports to US ($60.2 billion) will be subject to a 50% tariff, severely impacting their competitiveness and threatening market share. We divide these in two categories: (I) Sectors where the US accounts for over 30% of India’s global export and (I) Sectors where the US accounts for less than 20% of India’s global export. I-The most severely impacted sectors are those where the US accounts for over 30% of India’s global exports, predominantly labour-intensive industries, which now face 70–80% expected declines in annual exports. Shrimps ($2.4 billion exports to US; 32.4% US share in India’s global exports) will see total tariffs soar to 60%, collapsing farm-gate prices in Andhra Pradesh and threatening the survival of processing hubs in Visakhapatnam and West Godavari, while competitors like Ecuador, Vietnam, Indonesia, and Thailand seize market share. Diamonds, gold, and jewellery ($10 billion; 40% share) face tariffs rising from 2.1% to 52.1%, imperiling jobs in Surat, Mumbai, and Jaipur and pushing US buyers toward Israel, Belgium, China, and Mexico. Textiles and apparel ($10.8 billion; 35% share) will be hit by tariffs of up to 63.9%, devastating clusters in Tiruppur, Noida–Gurugram, Bengaluru, Ludhiana, and Jaipur, with Bangladesh, Vietnam, Mexico, and CAFTA-DR countries expected to replace Indian suppliers. Carpets ($1.2 billion; 58.6% share) face tariffs of 52.9%, jeopardizing livelihoods in Bhadohi, Mirzapur, and Srinagar, while Turkey, Pakistan, Nepal, and China gain. Handicrafts ($1.6 billion; 40% share) and furniture and bedding ($1.1 billion; 44.8% share) risk factory closures across Jodhpur, Jaipur, Moradabad, and Saharanpur, with Vietnam, China, Turkey, and Mexico filling the gap. Leather and footwear ($1.2 billion; 20% share) will lose ground to Vietnam, China, Indonesia, and Mexico, threatening Agra, Kanpur, and Tamil Nadu’s Ambur–Ranipet clusters. Agriculture and processed food ($6 billion) face a 50% tariff on high-value items like basmati rice, spices, and tea, enabling Pakistan, Thailand, Vietnam, Kenya, and Sri Lanka to take over US demand. II-Sectors with less than 20% US share, though relatively insulated, still face 50–70% potential declines due to their integration in global value chains. Organic chemicals ($2.7 billion; 13.2% share) will see tariffs jump from 4% to 54%, crippling chemical hubs in Gujarat, Maharashtra, Tamil Nadu, and Andhra Pradesh and yielding ground to EU, China, Mexico, and South Korea. Steel, aluminium, and copper ($4.7 billion; 16.6% share) face tariffs of 51.7%, threatening MSMEs in NCR and eastern foundry clusters, as US buyers pivot to USMCA, EU/UK, and Asia. Machinery and mechanical appliances ($6.7 billion; 20% share) face tariffs of 51.3%, endangering engineering hubs in Ludhiana, Jalandhar, and NCR, with China, Mexico, Germany, and Taiwan set to dominate. Vehicles and parts ($2.6 billion; 11.4% share) will face a 25–26% tariff under Section 232, modestly affecting niche exporters but accelerating US reliance on Mexico, Canada, and domestic producers.
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