India can weather rising US tariffs – here’s why
Trade developments are not expected to derail the long-term trend of corporate investment and margin expansion supported by favourable monetary conditions, solid corporate fundamentals and lower commodity prices
US PRESIDENT Donald Trump announced a 25 per cent tariff on goods imported from India, effective Aug 1, along with an additional penalty of 25 per cent – scheduled to kick in from Aug 27 – related to India’s ongoing energy and defence trade with Russia.
US officials are scheduled to visit India from Aug 25 to 30 to discuss a trade deal. India is expected to maintain its firm stance on agricultural and dairy market access – as it considers them to be non-negotiable – and is likely to negotiate for exemptions or phased tariff reductions.
Not surprisingly, the tariff announcements have raised speculation about the potential impact on India’s economy, corporate sector and financial markets.
To put the situation into perspective, the US recorded a trade deficit of US$45.5 billion with India in 2024. Exports of US goods to India totalled US$41.5 billion, while imports from India reached US$87.3 billion. Notably, exports to the US accounted for 17 per cent of India’s total exports and approximately 2.2 per cent of its GDP.
Without a resolution, key Indian export sectors – such as gems and jewellery, textiles, vehicle parts and chemicals – could face immediate headwinds.
Assessment of key export sectors
We provide our initial assessment of key sectors that are most directly connected to exports to the US:
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Pharmaceuticals. Currently exempt from the new tariffs, the pharmaceutical sector remains a critical component of US imports from India, valued at approximately US$13 billion in 2024. Given the US’ reliance on affordable Indian generics, particularly in essential medicines, this sector is unlikely to face significant tariff-related disruptions. Moreover, many Indian pharmaceutical firms have been establishing manufacturing facilities in the US, offering a degree of insulation against supply chain disruptions and trade barriers.
Cotton apparel. India holds a 14 per cent share of US imports in this category. However, with the US imposing tariffs of 20 per cent on Bangladesh exports and similar rates on Indonesia, Vietnam and Cambodia, India’s competitiveness could be at risk if it fails to secure tariff relief in the final agreement.
Electronics. Electronics exports, led by smartphones (notably iPhones), are currently exempt from tariffs. The final impact will depend on the broader trade framework, including how the US treats imports from other major electronics exporters such as China.
Gems and jewellery. India commands a dominant 44.5 per cent share of US imports in this segment. Given the US’ dependence on Indian suppliers, shifting supply chains would be costly and disruptive. Also, the gems and jewellery sector is labour and skill intensive and therefore price insensitive. While tariffs may compress margins in lower-value segments, core exports – particularly diamonds and handcrafted gold jewellery – are expected to remain resilient.
Limited impact on India’s broader economy
In our view, the broader impact of the tariffs on India’s economy appears contained, supported by several structural strengths:
- As a net importer, India can adjust its sourcing strategies to reduce its trade surplus with the US, potentially gaining leverage in future negotiations.
- India’s total exports reached a record US$824.9 billion in FY2024-2025, with services exports at US$387.5 billion and merchandise exports (excluding petroleum) rising to US$374.1 billion.
- Over the past two decades, India has significantly diversified its export base, in terms of both product categories and destination markets, which has enhanced its resilience against country-specific trade shocks.
Strong macroeconomic backdrop
India continues to be one of the fastest-growing major economies globally. The International Monetary Fund indicated that it is projected to grow at 6.4 per cent in 2025, compared to global growth of 3 per cent, and 4.1 per cent for emerging markets.
India’s external position also remains robust. Foreign exchange reserves stood at US$640.3 billion as at December 2024, covering nearly 90 per cent of the country’s external debt.
Favourable monetary conditions, solid corporate fundamentals and lower commodity prices are expected to support further corporate investment and margin expansion. We do not expect the trade developments to derail this long-term trend.
Domestic investors continue to drive the majority of market flows, with resilience evident in local participation. However, foreign investors may adopt a more cautious stance towards Indian equities in the near term, reacting to tariff-related uncertainties. Combined with the relatively rich valuations of Indian equity markets, this could lead to some pressure on short-term foreign inflows.
While the final US-India trade deal remains under negotiation, its full impact on the economy and the equity market has yet to be determined.
Energy revolution in India
A key development to watch is whether India will stop importing oil from Russia – an outcome we view as possible, given that the discount for Russian crude has narrowed and the benefit is no longer as meaningful to India.
India has made remarkable progress in the renewable energy sector. As at June 2025, the country had 235.7 gigawatts from non-fossil-fuel sources, comprising 226.9 GW of renewable energy and 8.8 GW of nuclear power, accounting for 49 per cent of the country’s total installed power generation capacity of 476 GW.
The International Renewable Energy Agency’s statistics for 2025 indicated that India ranks fourth globally in renewable energy installed capacity, fourth in wind power, and third in solar power capacity.
A quiet yet transformative shift is underway in India’s energy landscape – one that could dramatically reduce the country’s reliance on imported fuels and chart a course towards sustainable, self-reliant growth. This shift was signalled by a recent auction for the procurement of green ammonia, produced using green hydrogen. The outcome was striking – the discovered price was half that of the previous auction and nearly on a par with gray ammonia, which is derived from fossil fuels.
This pricing breakthrough is possible only because green hydrogen – the key input – is now expected to be produced at a cost far lower than previously anticipated. The implications are profound. Green hydrogen has the potential to eliminate India’s dependence on imported fossil fuels, thereby addressing its trade deficit and enhancing energy security.
India has reached this technical milestone ahead of any other country, positioning itself as a global leader in the green energy transition.
Firm positioning
Given that the most significant exports from India – technology, pharmaceuticals and electronics such as smartphones – are exempt from tariffs, their impact will be felt mainly in labour-intensive industries such as polished diamonds and textiles. If trade negotiations between the US and India force a choice between safeguarding India’s labour-intensive exports and curbing imports from Russia, we believe India is more likely to opt for the latter.
The country still has until the end of the month to decide on the next step, and is also awaiting the outcome of the Russia-Ukraine peace talks.
We maintain a strategic focus on companies with strong domestic exposure and reasonable valuations. For export-oriented companies, we believe the ability to establish local operations in key markets will be a critical differentiator.
Huzaifa Husain is head of India equities and Priyasha Mohanty is equity product specialist, PineBridge Investments
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