The newly announced 25% tariffs by the United States on a wide range of Indian exports, including auto parts, electronics, textiles, and gems, have once again put the focus on the fragile state of bilateral trade between the two nations. Experts believe that this move could directly impact Indian shipments worth over $3 billion annually. While the overall effect on India’s GDP may not be drastic, the tariffs are still expected to deliver a substantial blow to several industries that rely heavily on exports to the US. Specifically, sectors like textiles, garments, and automotive components are at risk of seeing a significant decline in overseas orders, with some firms already bracing for reduced revenues and job cuts.
According to Ankit Patel, co-founder of Arunasset Investment Services, nearly 10% of India's total exports to the US—mainly comprised of products in the gems and jewellery, textiles, and auto parts sectors—now face the new 25% tariff. If export volumes in these segments fall by around 15%, the economic damage could be immediate, resulting in a quarterly loss of roughly $300 million. If the tariffs remain in place for a year, the total losses could climb to almost $2 billion. Patel also highlighted that textile and apparel shipments, which are worth close to $3 billion, could drop by 10%, leading to another $70 million in losses this quarter alone. US buyers, looking to cut costs, may shift their sourcing to countries like Vietnam or Bangladesh, which would further erode India’s market share.
Rajani Sinha, Chief Economist at CareEdge, explained that exports from India to the US currently make up just under 2% of India’s gross domestic product. So even if exports were to drop by as much as 20%, the total drag on GDP would likely be contained to around 0.3–0.4%. However, she also warned that the situation could have more serious consequences in the long term, especially as India tries to balance its international trade relationships, including those with countries like Russia and Iran. The tariffs, therefore, are not just an economic issue but a strategic challenge that might require India to rethink some of its existing partnerships.
The decision by President Donald Trump, announced on July 30 and scheduled to take effect on August 1, has sparked controversy. The US administration accuses India of maintaining unfair trade barriers, while Indian policymakers argue that their tariff policies are carefully designed to protect vital domestic industries—particularly agriculture and dairy, which are politically sensitive sectors in the country. These protectionist policies are unlikely to change soon, as altering them could risk upsetting large voter bases that depend on farming incomes and affordable food prices.
Munjal Almoula, a partner at BDO India, noted that the US tariffs seem to include not just a standard 25% hike but potentially also a punitive element aimed at India’s continued economic ties with Russia, including oil imports and defense contracts. He believes that the United States is now using trade as a diplomatic tool to exert pressure. This could have wider consequences for a comprehensive trade deal between India and the US, which had previously been targeted for completion by the end of 2025. Key sticking points in the negotiations include India’s resistance to opening up its dairy and genetically modified food markets and its stance on suspending customs duties for e-commerce—a matter currently under World Trade Organization review.
Economist Garima Kapoor from Elara Capital warned that the new tariffs could raise India’s effective tariff rate from an average of 2.4% to as high as 26%. If the current trade impasse lasts more than two quarters, she predicts that it could shave 20 to 30 basis points off India’s GDP growth. The sectors most exposed to the US market—such as solar equipment, jewellery, and automotive parts—would feel the brunt of this impact, especially those firms for whom the US makes up over 40% of their revenue base. Kapoor also suggested that some of the immediate fallout may be softened by a depreciation of the Indian Rupee, which could cross 88.5 to the US Dollar, partially offsetting the decline in exports.
Furthermore, she anticipated that the Reserve Bank of India might implement a 50-basis-point rate cut in August to stimulate domestic economic activity and counteract the negative effects of reduced exports. While acknowledging that India’s average tariff levels are higher than those of its regional peers, Kapoor emphasized that this is due to India’s unique policy needs. Unlike ASEAN nations that are more integrated into global supply chains and less protective of agriculture, India continues to guard sectors like dairy and ethanol production for both economic and political reasons. She cautioned that any attempt to rush a trade agreement just to placate US concerns could actually do more harm than good by undercutting India’s long-term competitiveness in global markets.
Even though India's dependence on the US for goods exports remains relatively modest when compared to other trading partners, this latest confrontation arrives at a particularly sensitive time. India has set an ambitious goal of increasing bilateral trade with the US to $500 billion by 2030. However, if this dispute escalates further and trade relations continue to sour, the road to reaching that target will likely become far more difficult and unpredictable. The tariffs, therefore, could not only weaken specific sectors in the short term but may also cast a shadow on India's broader economic strategy moving forward.
