US imposes 50% tariff on $48 billion of Indian exports
On August 27, the United States imposed a 50% tariff on a wide basket of Indian exports, doubling an earlier 25% duty marking the sharpest escalation in trade tensions between the two countries in years. US blamed the move on India’s continued purchase of discounted Russian crude oil and defence equipment, with the US arguing that India is indirectly funding Moscow’s war in Ukraine. The blow on India is substantial: nearly $48 billion worth of Indian goods, from textiles and jewellery to shrimp and machinery, now face punitive levies at American ports. Prime Minister Narendra Modi has vowed to safeguard India’s farmers, stressing that their interests will not be compromised despite the tariff shock.
Impact in India
The 50% tariff directly hits labour-intensive sectors such as textiles, gems and jewellery, shrimp, leather and auto parts—industries that collectively employ millions.
- Textiles & Apparel ($10.8 bn): Effective duties now near 64%, rendering exports uncompetitive. Tiruppur’s knitwear cluster is already seeing order cancellations.
- Gems & Jewellery ($9.9 bn): Duties rise above 52%, disrupting Surat’s diamond hub and MSME exporters.
- Shrimp & Seafood ($2.4 bn): Levies of 60% risk pushing Indian exporters out of the US market, with Ecuador gaining an edge at just 15% duty.
- Leather & Auto Components ($4–5 bn): Margins shrink as US importers renegotiate contracts.
Exports to the US, worth $86 billion in FY25, could shrink to nearly $50 billion by 2026, with an estimated GDP loss of 0.5–1%. Production slowdowns are already visible in Tiruppur, Noida and Surat, while the seafood industry fears supply chain disruption and farmer distress. However, some sectors such as pharmaceuticals ($10.5 bn), electronics ($14.6 bn), and petroleum products ($4.1 bn) have been exempted for now, offering partial relief.
Impact in the US
American importers now face steep costs on Indian textiles, shrimp, jewellery and leather goods. Shoppers are likely to feel the pinch as prices rise, while retailers scramble to shift sourcing to Vietnam, Bangladesh and Ecuador which enjoy lower tariff regimes. The only reprieve: Indian generics, which supply nearly half of America’s affordable drugs, remain exempt from the new duties.
The Road Ahead
India has ruled out retaliation, focusing instead on diversifying markets and boosting domestic competitiveness. While talks on a bilateral trade pact with the US remain stalled, India is strengthening links with the EU, Gulf, and Latin America. Economists warn the greater risk lies not in the immediate export loss, but in a shift towards protectionism at home, which could undermine India’s long-term global integration. The government is preparing a Rs. 25,000-crore Export Promotion Mission, GST reforms, and financial support to cushion the blow.
GST Revamp: India’s Relief Policy
In response, India rolled out a sweeping GST revamp from September 22 as a deliberate cushion against tariff shocks. By easing the tax burden on households and small businesses, the government is betting on domestic demand to offset external pain.
Key measures include:
- Consolidating GST slabs into 5% and 18%, with 40% for sin goods.
- Moving essentials like food, shampoos, and medicines to 0–5%.
- Cutting white goods such as fridges, ACs, and TVs to 18%.
- Reducing small cars from 29% to 18% and SUVs from 50% to 40%.
- Exempting life and health insurance premiums from GST.
With consumption already accounting for 61% of India’s GDP, the GST reset doubles as both economic shield and political relief, turning tariff anxiety into a festive-season boost for consumers and small businesses.
India’s Q1 GDP Growth
India’s economy grew a robust 7.8% in the April–June quarter of FY2025-26, the fastest in over a year and well above forecasts of around 6.7%. The expansion was powered by buoyant services activity, double-digit growth in government spending, and strong momentum in manufacturing and construction. Agriculture, too, saw an improved performance, while investment activity picked up with gross fixed capital formation rising 7.8%. Even on a nominal basis, GDP growth at 8.8% outpaced expectations, underscoring resilience despite global headwinds.
Acknowledgements:
RBI Bulletin (www.bulletin.rbi.org.in), SEBI (www.sebi.gov.in), NSE (www.nseindia.com), BSE (www.bseindia.com)
Disclaimer:
This material has been prepared by the personnel in Vora Corporate Finance which is Investment Banking arm of Vora Management Consultancy Private Limited and looks after Mergers & Acquisitions (M&A), Private Equity (PE), Fund Raising, Debt syndication and Valuations and is based out of Ahmedabad, Gujarat, India. Any views or opinions expressed herein are solely that of individual authors and may differ from view of Vora Management Consultancy Private Limited. This material is proprietary to Vora Management Consultancy Private Limited and is for your personal use only. Any distribution, copy, reprints or forward to others is strictly prohibited.
This material captures the information based on information available in the public domain, public announcements and sources believed to be reliable. Analysis contained herein is based on publicly available information and appropriate assumptions. This material is intended merely to highlight market developments and is not intended to be comprehensive and does not constitute strategic, investment, legal or tax advice. In no event Vora Management Consultancy Private Limited be liable for any use by any party or for any decision made or action taken by any party in reliance upon, or for any inaccuracies or errors in, or omissions from, the information contained herein and such information may not be relied upon by you for evaluating any transaction.