The Indian government has conveyed to the Parliament that the impact of recently imposed US tariffs on Indian goods will largely depend on the comparative tariffs levied on India's competitors. This statement comes amidst rising concerns about the state of Indo-US trade relations after the United States imposed a total of 50% tariffs on certain Indian goods.
Background of the Tariffs
The US initially implemented a 25% tariff on Indian goods, followed by an additional 25% tariff that was announced on August 6, 2025. This move is largely seen as a response to India's continued purchase of Russian oil, despite geopolitical tensions surrounding the Russia-Ukraine war. The tariffs are the highest that the US is charging any of its trading partners, causing considerable concern in India. The stated reasons for the tariffs include boosting US manufacturing, creating jobs, and reducing trade deficits.
Government's Stance and Response
India's Ministry of External Affairs has condemned the tariffs as "unfair, unjustified, and unreasonable," asserting India's sovereign right to make its own energy decisions. The government is pursuing a multi-pronged strategy that includes diplomatic engagement, and sectoral support. While direct subsidies have been ruled out, measures like interest subsidies, loan guarantees, and reduced certification fees for MSMEs are being considered. The government has told a parliamentary panel that India would not cross some red lines during trade negotiations. Officials have emphasized India's commitment to resolving pending matters through dialogue, while firmly maintaining certain non-negotiable positions.
Impact on Indian Economy and Exports
It is estimated that around 55% of the total value of India's merchandise exports to the US is subject to reciprocal tariffs. The increased tariffs could significantly impact India's economy, potentially reducing the country's GDP growth and export competitiveness. Bloomberg Economics noted that the new tariffs, steeper than those applied to India's export rivals like Vietnam and China, could cut shipments to the US by as much as 60%. Sectors like textiles, gems and jewellery, leather, marine products, chemicals, and auto components face significant exposure. Shrimp exports, worth USD 2 billion, could face major disruptions. The diamond industry in Surat is also expected to be hit hard.
Diversification and New Trade Opportunities
Faced with these challenges, India is actively diversifying its export strategies, leveraging existing trade agreements, and exploring new partnerships with countries like EFTA and the UK. Negotiations with the EU are being accelerated to reach a swift conclusion. This plan aims to maximize benefits from India's existing trade agreements with the UAE, Australia, ASEAN, Japan, Korea and Mauritius, whilst simultaneously exploring new trading opportunities with potential partners.
Geopolitical Implications
Some experts believe that the US tariffs are also a way to pressure Russia to end the war in Ukraine. Former RBI Governor Raghuram Rajan has warned that while India can handle cutting Russian oil, the political fallout of bowing to US pressure would be severe. He suggested that the tariffs risk harming trade and pushing India closer to Russia and China.
Exemptions and Stock Market Reaction
Notably, pharmaceuticals, electronics, and energy have been exempted from the tariffs. The Indian stock markets reacted positively on the day the additional 25% tariff was announced. Sectors like gems and jewellery, automobiles, and textiles saw significant pressure, while IT services, FMCG, and banking remained relatively insulated due to limited US exposure. The Nifty Pharma index, however, rose 2.73% due to tariff exemptions for pharmaceuticals.
