India’s Total Exports Will Grow in FY26 Despite 50 PC Tariff on US Exports

 Chennai: From Wednesday when the 50 per cent tariffs for US exports take effect, India will be in the highest tariff bracket and the only country facing a penalty for buying Russian oil. Despite a $37 billion - $39 billion estimated dent in merchandise exports, India’s total exports will remain resilient and even continue to grow in FY26, thanks to the rising services exports.

As per the estimates of Federation of Indian Exporters Organisation, around 55 per cent of the US exports will be severely impacted by the tariffs and this could be around $47.5 billion of the US exports valued at $86.5 billion in FY25. This would drag down US exports to $39 billion. When considered against the $437 billion merchandise exports of FY25, the impact could be 10.8 per cent and against the total exports – merchandise and services combined- the impact would be 5.79 per cent.

The GTRI estimates India’s exports to the US to come down to $36.9 billion - from $86.5 billion in FY2025 to about $49.6 billion in FY2026. While 30 per cent or $27.6 billion exports will remain duty-free and 4 per cent or $3.4 billion will face a 25 per cent tariff, the bulk - 66 per cent or $60.2 billion covering apparel, textiles, gems & jewellery, shrimp, carpets, and furniture - will be hit with a 50 per cent tariff. Exports from these sectors could plunge 70 per cent, dropping to $18.6 billion.

However, GTRI projects merchandise exports to countries, excluding the US, to grow by 5 per cent, rising from $350.9 billion in FY2025 to $368.5 billion in FY2026. Services exports may grow by 10 per cent from $383.5 billion to $421.9 billion, led by IT, business services, fintech, and healthcare. The total exports- goods and services together- are projected to grow by 2.3 per cent in FY26 from $820.9 billion in FY2025 to $839.9 billion in FY2026.

How we reached here

Over the past few months, India was seen becoming the biggest victim of the United States' aggressive global tariff policies.

On April 2, when US President Donald Trump announced retaliatory tariffs on trade partners, India’s position was relatively better compared to other Asian trade powers. While India was slapped with a 26 per cent tariff, China faced 34 per cent, Vietnam 46 per cent, Bangladesh 37 per cent, and Cambodia 49 per cent.

India was the first to initiate bilateral trade negotiations with the U.S. However, talks stalled when the US demanded India to fully open its markets to American agricultural products, genetically modified foods, and dairy products.

Trump had boasted that 90 bilateral trade agreements would be signed within the 90-day window before the tariffs took effect. But ultimately, deals were signed only with the U.K., European Union, South Korea, Vietnam, Japan, Indonesia, and the Philippines. These were one-sided agreements benefiting only the US, allowing it to influence the economic policies of those countries, apart from promises to make large investments in the US. In return, they saw the reciprocal tariffs coming down by just a few percentage points.

On July 31, the US revised tariff rates for countries engaged in negotiations except for India. While India’s tariff rate remained at 25 per cent, countries like Bangladesh, Cambodia, Malaysia, Pakistan, Sri Lanka, Taiwan, and Thailand saw reductions to around 19–20 per cent. This eroded the tariff advantage India had previously.

Further, on August 6, the US declared that it would impose an additional 25 per cent tariff on India from August 27 for importing oil from Russia, which is under economic sanctions. Thus, India was pushed to the highest tariff bracket of 50 per cent which had only Brazil for prosecuting former President Jair Bolsenaro.

India is not the only country importing oil from Russia amid the ongoing Ukraine war. According to the Centre for Research on Energy and Clean Air, China was the top buyer of Russian oil from January 2023, importing $158.7 billion worth, followed by India ($119.3B) and Turkey ($62.1B).

During the same period, the European Union imported Russian oil worth $23.2 billion, Brazil $19.6 billion, Singapore $13 billion, Hungary $6.1 billion, South Korea $3.3 billion, Saudi Arabia $11 billion, and Slovakia $10.2 billion. The US hasn’t acted against China — the largest consumer — fearing retaliation, such as restrictions on rare earth element exports. Nor has it acted against the other major buyers.

In the past few weeks, the US kept India on tenterhooks as it linked the decision on the penalty tariff with the outcome of its discussions with Russia over the Ukraine war. Meanwhile, India stood firm on its stand over Russian oil and the imports of agricultural and dairy products from the US under the trade talks.

Labour-intensive sectors hit badly

The 25 per cent reciprocal tariff came into effect on August 7. The 50 per cent tariff from Wednesday will severely hit labour-intensive sectors like textiles, gems and jewelry, marine products, and engineering goods, mainly driven by micro, small, and medium enterprises, threatening thousands of jobs.

In engineering goods exports, MSMEs have a share of 19.64 per cent and employ around 4 million people. Of the $19 billion in exports in this category, only 10–15 per cent (steel, aluminium and their derivatives) may be relatively safe due to globally applicable tariffs. However, for other products, competition from lower-tariff countries could result in a 50 per cent drop, finds EEPC.

After agriculture, textiles are India’s second-largest employer, supporting over 45 million people, mostly in small-scale enterprises. In FY2025, India exported about $10 billion in textiles to the US. This sector, already competing with Bangladesh, China, Vietnam, and Cambodia, could see a $5 billion loss. With the new 50 per cent duty, total tariffs could rise to 59–64 per cent, according to the Confederation of the Indian Textile Industry.

In gems and jewellery, another MSME-dominated sector employing 4.3 million people, the $10 billion worth of exports to the U.S. will now attract a 52.1 per cent tariff. As jewelry is not a necessity, price hikes due to tariffs will seriously hurt demand. Exports in this category have already been declining since 2012, finds GJEPC.

Marine exports, especially shrimp, are dominated by small businesses, employing lakhs of workers. India exported $2 billion worth of shrimp to the U.S. in FY2025, accounting for 9.52 per cent of US shrimp imports. These exports face not just the 50% tariff but also anti-dumping duties and an approximate 10 per cent countervailing duty. Meanwhile, competitors like Canada, Ecuador, Vietnam, Chile, and Indonesia benefit from lower tariffs, intensifying the competition.

More damaging than the visible economic impact could be the indirect consequences. Rising prices from tariffs would reduce US consumer spending, possibly pushing its economy toward recession and this will quickly affect sectors like IT. A recession in the world’s largest economy would, as seen in 2008, have global ramifications.

How to insulate the export sectors from tariff fury

To protect India’s export sector, the government must act swiftly. Urgent action is needed to address issues related to import duties on raw materials, logistics inefficiencies, and delayed interest subsidies.

India should diversify its market by accelerating the trade talks with other nations and economic blocs and speed up implementation of already signed agreements. India has concluded trade deals with the UAE, Mauritius, Australia, the UK and the European Free Trade Association (EFTA), which includes Iceland, Liechtenstein, Norway and Switzerland.

India has achieved considerable progress in trade talks with several other countries and economic blocs, which includes European Union, New Zealand, Chile, Peru, Eurasian Economic Union and Oman. Further, India is trying to boost its trade with countries like Russia, and Sri Lanka, seeking investments from Japan and easing relationships with China.

As the trade talks will take time to offset the losses on US exports, the export sector requires urgent measures to stay afloat.

Simplification of GST under two rates, as promised by the government, will boost domestic demand. The government also should provide WTO-permitted support for severely affected sectors. The industry has been asking to increase the duty drawback rates, hike allocations for the RoDTEP and ROSTL schemes, while providing interest equalisation schemes of Rs 15,000 crore. Equally hit Brazil has announced a package of $5 billion for its exporters.

The government can provide cheaper and easier credit to MSMEs as well as wage support to badly hit sectors like shrimp, apparel, jewellery, and carpets. Funds to upgrade technology and quality as well as reduction of import duties on raw materials can make the Indian product competitive despite higher tariffs compared to its peers.