NEW DELHI: The imposition of higher tariffs by the US will significantly impact micro, small, and medium enterprises (MSMEs), which account for as much as 45% of India's total exports. The textiles, gems and jewellery, and seafood industries, which account for 25% of India's total exports to the US, are likely to be the most affected, as MSMEs have more than a 70% share in these sectors. The chemicals sector, where MSMEs have a 40% share, is also likely to face difficulties.
A GTRI report projects that India’s exports to the US could be slashed to $49.6 billion in FY2026, a 43% decline from the previous year's $86.5 billion.
The US on Tuesday has notified the implementation of additional 25% duties on Indian goods, thereby raising the overall tariff to 50%, to be effective from August 27. However, few items like steel, copper and aluminium and sectors like automobiles (passenger vehicles like SUV, sedan) have been exempted from the tariff.
Sector-Specific Analysis
Several sectors that will be most severely impacted due to their heavy dependence on the US market.
Textiles and Apparel: The Tiruppur cluster, which accounts for over 30% of India's ready-made garment (RMG) exports, will be severely impacted. Tariffs on RMG will increase to 61% from the previous 13.9%, making Indian products uncompetitive against rivals in Bangladesh and Vietnam. Pushan Sharma, Director, Crisil Intelligence, states, “Partial absorption of the increased product prices due to higher tariffs will put pressure on MSMEs, squeeze their already-slim margins and pose a material challenge to their competitiveness. For instance, those into readymade garments (RMG) are expected to lose ground in the US as the tariff increases to 61%, including 50% additional ad valorem duty, compared with peers in Bangladesh and Vietnam tariffed at 31%.”
Diamonds and Jewellery: Exports to the US, which comprise 40% of India’s global exports in this sector, will face a tariff surge from 2.1% to 52.1%. MSMEs in Surat, which dominate diamond exports with over 80% share, will feel the shock, as the U.S. is a major consumer of Indian diamonds.
Shrimp: India’s top market for farmed shrimp, the US is imposing a 50% tariff on top of the existing 10% countervailing duty, bringing the total tariff to 60%. This will disadvantage seafood MSMEs, which already face severe competition from countries like Ecuador, which is levied a much lower tariff of 15%.
Auto components: The auto components sector is expected to be only marginally affected, though MSME suppliers of gearbox and transmission equipment will be impacted. The pharmaceutical sector remains unscathed for now, as it is currently exempt from tariffs. In the steel industry, the US tariffs are expected to have a negligible impact on MSMEs, as they are mainly engaged in producing long products, while the US primarily imports flat products from India.
Macroeconomic Impact and Resilience
A GTRI report projects that India’s exports to the US could be slashed to $49.6 billion in FY2026, a 43% decline from the previous year's $86.5 billion. This could cause India’s GDP growth to drop from a projected 6.5% to 5.6%.
However, the report also highlights India's resilience. The country's global trade momentum remains positive, with total goods and services exports still projected to rise to $839.9 billion in FY2026. This is supported by a 10% jump in services exports and a 5% growth in non-US goods exports. The report notes that with exports forming only 20% of India's GDP, the country is less vulnerable to external shocks compared to others like Vietnam.
Strategies to cushion the impact
The Global Trade Research Initiative (GTRI) has suggested a two-pronged action plan to help India deal with the impact of U.S. tariffs, with measures targeted at both the government and industry.
On the government’s part, the report recommends reviving the Interest Equalisation Scheme with an annual outlay of ₹15,000 crore to make export credit more affordable for MSMEs. It also calls for special credit lines and wage support for severely hit sectors such as shrimp, apparel, and jewellery. In addition, the government should step up efforts to diversify markets by leading trade missions to the EU, Gulf, and East Asia, while also building “India+1” export hubs in countries like the UAE and Mexico to bypass US tariffs.
For industry players, the report advises reducing dependence on the U.S. by tapping new markets and focusing on high-value products like sustainable seafood and designer jewellery. MSMEs, it suggests, could form export consortia to pool resources, while larger companies should look at joint ventures in countries with which India has free trade agreements. The report also underlines the need to invest in e-commerce platforms and global B2B portals to cut reliance on large US buyers.
To mitigate the impact, Crisil suggests India can increase exports to other countries as well as leverage the benefits of the recently concluded trade deal with the UK and a potential deal with the European Union.
Elizabeth Master, Associate Director, Crisil Intelligence, says: “The India-UK free trade agreement is supportive for MSMEs in export-oriented sectors such as textiles, gems and jewellery, seafood, leather and pharmaceuticals. Although these account for less than 3% of imports to the UK, except RMG (6%), the deal would improve MSME competitiveness versus Bangladesh, Cambodia and Turkey, and lend an edge over China and Vietnam in RMG.”
