India Tariffs 2025: Impact, Policy Response and the Road Ahead

The U.S. Tariff Shock

In 2025, India faced one of its sharpest trade challenges when the United States—its largest export destination—imposed a 50 per cent tariff on Indian goods. What began as a 25 per cent “reciprocal” levy in early August quickly doubled after Washington linked the move to India’s Russian oil imports. This raised the effective tariff structure to a 10 per cent base duty, 25 per cent reciprocal levy and 25 per cent penalty—placing India among the most heavily taxed U.S. trading partners.

The escalation, effective August 27, 2025, affected nearly 70 per cent of Indian exports to the U.S., worth over USD 60 billion annually and immediately reshaped trade flows and industry competitiveness.

Sectors Spared from the Tariff Storm

Despite the sweeping nature of the tariff, about 30 per cent of exports—worth USD 27–30 billion—remain exempt due to their strategic relevance to the U.S. economy.

• Pharmaceuticals: India continues to supply nearly half of America’s generic drug demand. The exemption ensures uninterrupted access to affordable medicines.
• Electronics: Smartphones, semiconductors and chips produced in India—especially iPhones—escaped higher duties. Electronics exports rose 50.5 per cent year-on-year in September 2025.
• Energy Products: Refined fuels and light oils also remain duty-free, protecting a USD 4 billion trade segment.
• Metals and Auto Components: Steel and aluminium retain earlier Section 232 tariffs (25 per cent) but avoided the new penalty, while select automotive parts for light vehicles were spared.

Industries Bearing the Brunt

Textiles and Apparel

The textile sector, employing 45 million people, was hit hardest. With 28 per cent of exports bound for the U.S., new tariffs of up to 40 per cent rendered Indian garments uncompetitive versus Bangladesh or Vietnam. Many exporters are now shifting focus to the EU and investing in sustainable production to meet European standards.

Gems and Jewellery

This USD 10-billion export segment faces severe losses, as a 50 per cent duty makes Indian diamonds and jewellery pricier than Turkish or Thai competitors. Surat and Mumbai, India’s diamond hubs, are witnessing job losses and factory shutdowns.

Leather and Footwear

The USD 1-billion U.S. leather market for India is shrinking fast. Over 50 factories in Tamil Nadu have closed and production is shifting to tariff-friendly countries like Vietnam and Ethiopia.

Marine Exports

Shrimp exporters—who previously sent 48 per cent of their produce to the U.S.—now face a 59.7 per cent effective duty after including anti-dumping levies. Export volumes are down nearly 20 per cent, hurting coastal economies in Andhra Pradesh and Gujarat.

Engineering and Chemicals

Engineering exports worth USD 12.5 billion and specialty chemicals face margin erosion, order cancellations and relocation pressures. MSMEs, with limited financial resilience, remain the most vulnerable.

India’s Domestic and Diplomatic Response

Targeted GST Cuts to Cushion Export Industries

In response to the U.S. tariff shock, the Indian government rolled out targeted GST reductions to ease pressure on export-oriented sectors. The GST Council’s September 2025 review lowered rates by 2–6 per cent for key industries like textiles, footwear, leather, gems and marine products. For example, GST on apparel under Rs 1,000 was cut from 12 per cent to 8 per cent and on footwear from 18 per cent to 12 per cent. Refund processes under IGST were also simplified for quicker credit reimbursements. These measures helped cushion profit erosion, improve liquidity and maintain competitiveness amid global trade disruptions.

Major FTAs Signed by India Post-Tariff Escalation

Since the imposition of steep U.S. tariffs in 2025, India has redoubled its efforts to diversify trade through new FTAs. The landmark India–United Kingdom Comprehensive Economic & Trade Agreement (signed 24 July 2025) offers zero-duty access for 99 per cent of Indian exports to the UK and opens services, government procurement and mobility corridors between the two countries. Earlier, the India–EFTA Trade & Economic Partnership Agreement (signed 10 March 2024) is set to come into force 1 October 2025 and will eliminate tariffs on virtually all Indian exports to the EFTA bloc. Collectively, these pacts signal India’s strategic shift to reduce dependency on the U.S. market and expand access to high-value trade partners.

Conclusion

The 2025 U.S. tariff escalation represents both a shock and a turning point for India’s trade policy. While traditional export engines like textiles, leather and gems have stumbled, India’s strategic responses—currency flexibility, customs reform and diplomatic engagement—are cushioning the blow.

With the IMF reaffirming India’s growth outlook and trade diversification accelerating, this crisis could ultimately strengthen India’s long-term self-reliance and global positioning. The coming months, especially the outcomes of U.S. and EU negotiations, will determine whether this setback becomes a springboard for a more balanced and resilient export ecosystem.