Main impacts of US tariffs on India’s economy:

 

Export Hit and GDP Growth: US tariffs—such as the 25% duty imposed in 2025—threaten India's competitiveness, especially in labor-intensive sectors like textiles, gems, auto parts, and seafood. Experts estimate that India's exports to the US could fall by $16–40 billion annually; this could shave off about 0.2% to 1% from India's GDP growth in FY26 due to reduced export demand and production.

Job Losses and Pressure on SMEs: Small and medium enterprises (SMEs), which dominate sectors like garments, leather, and handicrafts, are particularly vulnerable. Rising costs and falling orders may lead to job losses, as many SMEs lack the capacity to absorb the increased costs or quickly find alternative markets.

Rupee Depreciation and Market Volatility: A decline in exports can widen India’s trade deficit and put downward pressure on the rupee, potentially leading to higher import costs and inflation. The stock market may become volatile, with foreign investors taking a cautious approach in response to the uncertainty.

Sectoral Exposure: Sectors like gems and jewelry, textiles, auto components, and industrial machinery are expected to bear the brunt of the tariffs. While pharma and electronics have largely been spared so far, any broadening of US tariffs could jeopardize India's ambition to upgrade its manufacturing value chain.

Trade Diversion and Competitive Loss: Lower US tariffs on alternative suppliers (Vietnam, Indonesia, South Korea) may further erode India’s market share, diverting orders away from Indian exporters.

Macroeconomic Consequences: If the US tariffs remain, India may face slower export growth, less foreign direct investment, and increased inflationary pressures. There is also a risk of India getting stuck in low-value manufacturing segments, limiting progress up the global value chain.

Long-Term Perspective: Despite the near-term challenges, India’s large and skilled labor force, ongoing policy reforms, and demographic advantage may support the country’s long-term appeal as a global manufacturing destination, as some experts see these tariffs as short-term geopolitical tools rather than permanent barriers.

Government Response: The Indian government is seeking to counter these effects through incentives, logistics cost reductions, export diversification, and building stronger domestic brands.

In summary, while the tariffs could dent export margins, dampen GDP growth, and trigger industry disruption in the short-term, India's underlying economic strengths and government policy response may help mitigate adverse effects over the longer horizon .