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India @50% Tariffs: No need to press the Panic Button

ICICIdirect Research 08 Aug 2025 DISCLAIMER

Tariff Shocker:  US president Donald Trump on Wednesday announced an additional 25% tariff rate on India for its continued purchase of Russian crude oil. The tariff schedule to take effect in three weeks and will be imposed in addition to separate 25% duty taking effect from August 7th 2025. This 50% tariff is higher than anticipated than competing countries Brazil - 50%, Canada - 35%, China - 30%, Vietnam - 20%, Thailand - 19%, Indonesia - 19%, EU - 15%, Japan -15%, UK-10%
India’s economy is largely domestic driven in nature and barely 10% of NIFTY 500 companies’ revenue is driven by exports.
While US share in total exports is 20%, it share in GDP is India’s GDP is 2%. For Nifty 500 companies, around 80% of the revenue is domestic driven with US exposure limited to ~5%.
Sectors most impacted by US tariffs are Gems & Jewellery, Leather and Textiles which do not have large representation in the listed space. Pharmaceuticals and Electronics and services like IT remain in the exempted list.
India needs to sign more FTAs deals like the India-UK deal with other countries and roll out PLI like incentives for domestic manufacturing
Keep negotiating with the US for a better deal. Furthermore, any Russia Ukraine truce would be added positive and could lead to removal of penalty of 25%. 


Impacted sectors
Textiles: US is India’s largest export market, making up around ~50% of India’s Textile exports. Imposition of additional tariff of 25% on India is negative for textile sector as cumulative tariff rate will be 50%, which increase the gap with other major textile exporting countries such as Bangladesh and Vietnam tariffed at 20%. Also, India will become less competitive compared to large textile manufacturer such as China.
Gems and Jewellery: This sector derives ~30% of its revenues from US. This steep tariff would impact this sector and its employment capabilities in future


Sectors not impacted
Pharma: US remains a major market but it remains exempt from its newly expanded tariff regime. Given its critical role in affordable healthcare (40% of US’s generic drug demand), Indian drugmakers are likely to stay resilient
Auto components: Auto components are already subject to 25% tariff since May’25 and is exempt from the country-specific reciprocal tariffs. Since the levy on auto parts is the same for all countries, there is no impact on competitiveness of products made in India.
IT Services: India's largest services export category remains untouched as services have been out of purview.
 
Key Takeaway: The US tariff hike presents a near term challenge for few sectors, however the broader impact on India’s economy and equity market remains limited as India is largely a domestic driven economy

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