US Imposed 25% Tariffs on India: Know the Detailed Impact on the Indian Economy

From August 1, India will face a 25% tariff on goods exported to the US, which can cause a major impact on the Indian economy and key export-focused sectors. The US-India trade deal has taken a back seat as India is looking to protect its MSMEs, rural population, and entrepreneurs by not opening up the agriculture and dairy sector.

In this blog, we’ll get into the detailed impact of the US tariffs on the Indian economy and how has stock market has reacted to it.

Details of 25% US Tariffs on India

The US is the largest export destination for India, which stood at $86.51 billion in FY25. On the late evening of July 30th, US President Trump imposed the 25% tariffs on these massive trades, which will also include the 10% baseline levy applied in April.

In addition to the newly announced tariffs, Indian exports are also facing other tariffs. A 50% tariff on steel and aluminium, and a 25% tariff on automobiles and auto components. These new duties are imposed on top of existing tariffs, not replacing them.

For example, Indian textile products currently face a 6% to 9% import duty in the U.S. With the additional 25% tariff taking effect from August 1, the total duty will rise to 31% to 34%. Also, there is a possibility that additional penalties could be imposed, potentially pushing effective rates even higher.

What Does Tariff Mean in Simple Words?

A tariff is a type of tax imposed by a government on imported goods. It is also known as a customs or import duty, as this charge is paid by the importer when goods enter a country.

In practice, the importing company pays the tariff to the government at the port of entry. However, to offset this added cost, businesses usually pass it on to consumers by increasing the prices of the imported products. So, while the tax is paid by the importer, it’s often the end user who bears the financial impact through higher prices.

India’s Top Exports to the US

In 2024, the top 5 products exported to the US are smartphones and electronics products ($14.4 billion), pharmaceuticals ($12.7 billion), diamonds, gold, and jewellery ($11.9 billion), machinery and mechanical appliances ($7.1 billion), and organic chemicals ($3.6 billion).

This 25% tariff rate is making India lose its edge over other countries, which have lower tariff rates, such as Vietnam, Indonesia, and the European Union. This is going to hit Indian sectors such as apparel, auto components, pharmaceuticals, leather goods, jewellery, and electronics.

How Has the Stock Market Reacted?

On 31st July 2025, the Indian equity market closed lower due to tariff jitters. The Nifty closed below 25,000. At close, the Sensex was down 296.28 points or 0.36% at 81,185.58, and the Nifty was down 86.70 points or 0.35% at 24,768.35.

Today, HUL, Jio Financial Services, Eternal, JSW Steel, and ITC were the major gainers on the Nifty, while losers are Adani Enterprises, Dr. Reddy’s Labs, Adani Ports, Tata Steel, and Sun Pharma. BSE Midcap index lost 0.7%, while BSE Smallcap fell by 0.85%.

Long-Term Impact of US Tariffs on India

Exports to the US are less than one-fifth of the total goods exports of $437.42 billion in FY25. As the US holds only a meager share in total exports, India can certainly minimise the impact. It’s time for India to look to diversify their export basket to other nations, such as ASEAN countries. Also, the Indian economy can get a great boost from the India-UK trade deal over the long run, with an expectation that it can increase GDP by 0.06% over the long run.

Being the world’s fastest-growing major economies, India is getting a competitive advantage over Bangladesh, Sri Lanka, and Cambodia, which are currently facing more than 25% tariffs. There is still continuous hope for the India-US trade deal, which can benefit both economies over the long run.

Conclusion

Amidst these tariffs, the IMF has revised India’s GDP growth rate upward to 6.4% for both 2025 and 2026, up from the 6.2% in the April projection. It has also highlighted the strong domestic resilience of India to take the external headwinds. However, it is still unclear whether the tariffs are going to be there only for the short run or can have a long-term impact. So, open free Demat Account with SMC Global Securities and always invest as per the investment objective and risk profile.

Author: All Content is verified by SMC Global Securities.