New Delhi is on high alert as the United States, under former President Donald Trump's directive, moves to impose new or increased tariffs on Indian goods, with some reports indicating these could take effect as early as August 7, 2025. The drastic trade action is primarily attributed to India's continued procurement of Russian crude oil and the US's perception of India's high trade barriers. While a 25% tariff on Indian goods was previously announced, recent statements and executive orders suggest a potential "very substantial" hike, with some reports indicating an additional 25% tariff, bringing the total to 50% in certain cases.

The US administration's justification for these tariffs extends beyond trade imbalances, delving into geopolitical concerns. Trump has explicitly stated that India's purchase of Russian oil is "fuelling the (Russian) war machine" and expressed dissatisfaction with India's role as a trading partner, citing a significant trade deficit with India, which stood at $45.7 billion in 2024.

Economic Impact on India

While the immediate reaction from New Delhi has been one of concern, initial assessments vary on the extent of the economic fallout. A study by the PHD Chamber of Commerce and Industry (PHDCCI) projects a "negligible" impact on India's Gross Domestic Product (GDP), estimating a mere 0.19% reduction. The study also forecasts a 1.87% impact on India's total global merchandise exports, affecting approximately $8.1 billion worth of exports to the US.

However, other government internal assessments suggest a more substantial hit, with nearly $64 billion worth of Indian exports to the US potentially losing their competitive edge due to these tariffs, accounting for about 80% of India's total exports to the American market. Despite these looming threats, the Reserve Bank of India (RBI) has opted to maintain its GDP growth forecast, acknowledging the uncertainties but pointing to India's strong economic fundamentals.

Key Indian Sectors Under Threat

Several crucial Indian export sectors are expected to bear the brunt of these new tariffs:

• Engineering Goods: This sector faces a significant estimated impact of $1.8 billion.
• Gems and Jewellery: Exports in this segment could see an impact of $932 million.
• Textiles and Apparel: With the US being a critical market, accounting for nearly 28% of India's total textile and garment exports, companies like Welspun Living, Trident, and Arvind Ltd. are particularly vulnerable. The 25% tariff could lead to a 150 to 200 basis point margin contraction for exporters, especially for cotton garments.
• Pharmaceuticals: While typically treated differently in trade negotiations, India, as a major global supplier of generic medicines, could face increased non-tariff barriers such as stricter quality checks and regulatory audits.
• Auto Components: Manufacturers like Bharat Forge, Sona BLW, and Samvardhana Motherson with significant export exposure to the US market could experience pressure, alongside indirect impacts on automakers like Tata Motors (via JLR) due to rising costs and logistical challenges.
• Other Affected Sectors: The tariffs are also expected to impact exports of fruits and vegetables, meat, dairy, poultry products, tea, jute manufacturing, oil seeds, oil meals, cashew, and aluminum products.

India's Response and Mitigation Strategies

In response to the escalating trade tensions, Indian industry bodies and the government are exploring various measures to mitigate the impact. The PHDCCI has recommended a multi-pronged strategy for exporters:

• Increasing market penetration.
• Developing premium variants of export products.
• Redirecting trade volumes to other markets such as the EU, Canada, and Latin America.
• Encouraging joint ventures for on-shore production in the US.

The Indian government is also reportedly considering easing some dairy market access rules for the US in an attempt to placate the Trump administration. This diplomatic tightrope walk highlights the complex challenges India faces in balancing its economic interests with its geopolitical alignments in an increasingly protectionist global trade environment.