Starting today, India will start feeling the pinch of US President Donald Trump’s 26% tariff on Indian imports, effective from 9:30 am today.

In a decision that, as per Trump, is part of a broader strategy to address trade imbalances and encourage domestic manufacturing within the United States, is expected to affect various sectors with challenges in India.

According to market analysts, the immediate concern revolves around the potential contraction in India's export revenues. Sectors such as electronics, textiles, and gems and jewellery are projected to experience significant downturns.

Specifically, India's exports to the US from these sectors are projected to decline by USD 5.76 billion due to increased tariffs. Subsequently, this anticipated reduction in exports could exert downward pressure on India's GDP growth, prompting policymakers to explore fresh strategies.​

Sectoral Impacts

Agriculture:

India's agricultural exports to the United States have grown steadily over the past decade, with seafood, basmati rice, spices, and fresh vegetables among the most traded items. In FY 2023–24, agricultural exports to the US stood at around USD 7.4 billion, accounting for nearly 9% of India’s overall agri-export basket.

While seafood exporters may initially feel price pressure, exports of value-added items such as processed foods, organic produce, and dairy replacements—segments that have seen double-digit growth—might be disproportionately affected as these products often have thinner margins and are more susceptible to price elasticity.

Pharmaceuticals:

Initially exempted from the tariff hikes, the pharmaceutical sector now faces uncertainty following President Trump's announcement of impending tariffs on pharmaceutical imports a few hours ago.

Given that the US accounts for approximately one-third of India's pharmaceutical exports, companies like Biocon and Lupin, which derive significant revenue from the US, are particularly vulnerable. The potential imposition of these tariffs has already led to a decline in pharmaceutical stock prices. ​

Electronics and Textiles:

These sectors are poised to face substantial challenges due to the increased tariffs. The added costs may render Indian products less competitive in the U.S. market, potentially leading to decreased export volumes. ​

Gems and Jewellery:

Exports in this sector are anticipated to decline as the 26% tariff diminishes price competitiveness, making Indian products less attractive to US consumers. ​

Automobiles and Auto Components:

The automotive sector is likely to experience a downturn, with increased tariffs potentially leading to reduced export orders and impacting production levels domestically. ​

Information Technology (IT):

While not directly impacted by the tariffs, the IT sector may face indirect effects. A potential slowdown in the US economy, resulting from escalating trade tensions, could lead to decreased demand for IT services, affecting Indian firms reliant on US contracts. 

Mitigation Strategies and Outlook

In response to these developments, the Reserve Bank of India (RBI) has proactively adjusted its monetary policy, cutting the key repo rate by 25 basis points to 6.00% and shifting its stance to ‘accommodative,’ as per a recent press release.​

Furthermore, analysts say that Indian policymakers are exploring avenues to diversify export markets and reduce dependency on the US. Strengthening trade relations with other economies and investing in sectors less affected by the tariffs are part of a broader strategy to navigate the evolving global trade landscape.​