The Indian export sector is bracing for a major setback following the US decision to impose a 25% tariff on Indian imports starting August 1, accompanied by an unspecified penalty over India’s continued energy and defence ties with Russia. While the move has caused concern and uncertainty among Indian businesses, industry leaders are pinning hopes on an impending bilateral trade agreement (BTA) between the two countries to ease tensions and provide a roadmap for future cooperation.
Dr Ajay Sahai, Director General and CEO of the Federation of Indian Export Organisations (FIEO), said the lack of clarity around the quantum of the penalty has left Indian exporters and U.S. importers without a concrete basis to calculate landed costs or plan supply chains effectively. “This ambiguity disrupts supply chain planning and pricing strategies,” Sahai said. “However, given the strong momentum toward a BTA between India and the U.S., industry remains cautiously optimistic.”
The textile sector, one of the worst-hit segments, is particularly vulnerable. The U.S. is India’s largest market for textile and apparel exports, with shipments totalling $4.59 billion between January and May 2025 — a 13% rise over the same period last year. The Confederation of Indian Textile Industry (CITI) has warned that the steep tariff hike significantly erodes India’s competitive edge, especially against regional rivals like Vietnam (20% tariff), Indonesia (19%), and Cambodia (36%).
“The new tariff rate is going to seriously test the resolve and resilience of India’s textile and apparel exporters,” said CITI Chairman Rakesh Mehra. “Planning becomes difficult with no clarity on the penalty amount.” Still, Mehra expressed hope that the issue would be resolved under the forthcoming BTA and urged the government to support exporters in navigating the crisis.
Mehra also stressed the importance of preserving not just exports but employment in a sector dominated by MSMEs, with India targeting $100 billion in textile exports by 2030.
The tariff announcement was made by former U.S. President Donald Trump on Truth Social, where he accused India of maintaining high tariffs and “obnoxious” trade barriers, while buying military equipment and energy from Russia — actions he claimed were contrary to global efforts to isolate Russia over the Ukraine war.
“India will therefore be paying a tariff of 25%, plus a penalty... starting on August first,” Trump posted, citing a “massive trade deficit” with India.
Despite the challenges, Indian exporters and industry bodies remain hopeful that the BTA will provide a platform to negotiate fairer terms and restore stability to the trade relationship.
Hemant Jain, president, PHDCCI, says as the US recalibrates its trade policy and imposes higher tariffs across major exporting nations—including China, Vietnam, and Bangladesh—it is clear the world is entering a new phase of supply chain realignment. “While Indian MSMEs are momentarily impacted, this is also an opportunity. With global buyers looking to de-risk from overdependence on select geographies, India is emerging as the most credible, democratic, and scalable alternative,” he said.
He said now is the time for Indian industry to step up with quality, compliance, and competitiveness. With China and Vietnam facing similar tariff headwinds, India stands to gain long-term trust, diversified market share, and stronger positioning as a resilient global partner.
