India's export sector faces a potential setback as new U.S. tariffs could lead to a reduction of $5.76 billion, or 6.41%, in exports to the United States in 2025, according to a report by the Global Trade Research Initiative . The analysis highlights the vulnerability of key Indian industries, including electronics, diamonds, and petrochemicals, due to their substantial reliance on the U.S. market.
The GTRI report underscores that certain Indian exports to the U.S. have minimal local value addition. For instance, each iPhone exported from India, retailing at $1,000 in the U.S., contributes only $30 to the Indian economy. This is because the majority of the value accrues to component suppliers and Apple's licensing fees, with Indian manufacturers capturing a small fraction. Similarly, in sectors like solar panels and diamonds, the local value addition remains low, raising concerns about the actual economic benefits of such exports.
The imposition of a 26% tariff by the U.S. on Indian imports has intensified global trade tensions. While Indian officials maintain that the country's projected economic growth of 6.3% to 6.8% for the 2025-26 fiscal year will remain unaffected, private economists express skepticism. Analysts from institutions like Goldman Sachs have adjusted their growth forecasts downward by 20 to 40 basis points, anticipating a growth rate around 6.1%. The diamond industry, heavily dependent on U.S. demand, is particularly vulnerable, with potential repercussions for employment in this labor-intensive sector.
In response to the tariffs, Indian authorities are evaluating support measures for affected industries. The finance ministry is considering initiatives such as interest subsidies, enhanced credit facilities, and assistance in market diversification to mitigate the impact on exporters. Despite these challenges, the government has indicated no intention to retaliate with counter-tariffs, opting instead for diplomatic negotiations to address the trade dispute.
The broader implications of the U.S. tariffs are evident in the financial markets. On April 7, 2025, Indian stock indices experienced significant declines, with the Nifty 50 dropping 3.24% to 22,161.1 and the BSE Sensex falling 2.95% to 73,137.9. This downturn reflects investor apprehension regarding escalating trade tensions and their potential to dampen economic growth. The volatility index surged by 66%, marking its largest single-session increase in a decade, signaling heightened market uncertainty.
Economists suggest that India's diverse export portfolio may help cushion the blow from the U.S. tariffs. A report from the State Bank of India projects a 3% to 3.5% decline in exports to the U.S. but emphasizes that strategic diversification and value addition in manufacturing and services could offset this impact. India's ongoing negotiations for free trade agreements with the United Kingdom, Canada, and the European Union are also seen as avenues to expand market access and reduce dependence on the U.S. market.