Indian exports face blow as US enforces steep new tariffs from tomorrow

Indian exporters are bracing for disruptions after a US Homeland Security notification confirmed Washington would impose an additional 25% tariff on all Indian-origin goods from tomorrow (27 August), ramping up trade pressure on the Asian nation.

Indian exports will face US duties of up to 50% - among the highest imposed by Washington - after US President Donald Trump announced extra tariffs as punishment for New Delhi's purchases of Russian oil.

The new duties will apply to goods entering the US for consumption or withdrawn from warehouses for consumption from 12:01am EDT on the day or 9:31am IST, according to the Homeland Security notice.

The Indian rupee weakened 0.2% to 87.75 per US dollar in early trade, even as the greenback declined against many other currencies. The benchmark equity indexes (.NSEI) and (.BSESN) were each trading 0.7% lower.

White House trade adviser Peter Navarro and US Treasury Secretary Scott Bessent have accused India of indirectly funding Russia's war against Ukraine by boosting Russian oil purchases, and said that must stop.

Earlier this month, Bessent said India was profiteering from its sharply increased purchases of Russian oil, which now accounts for 42% of India's total oil imports, up from under 1% before the war – a shift Washington has called unacceptable.

India's commerce ministry did not immediately respond to an email seeking comment on the latest notification.

"The government has no hope for any immediate relief or delay in US tariffs," said a commerce ministry official, who spoke on condition of anonymity because they were not authorised to speak to media.

Exporters hit by tariffs would be provided financial assistance and encouraged to diversify to alternative markets including China, Latin America and the Middle East, the official added.

"The government has identified nearly 50 countries for increasing Indian exports, particularly of textiles, food processed items, leather goods, marine products."

Exporters seek aid

Exporter groups estimate hikes could affect nearly 55% of India's $87 billion in merchandise exports to the US, while benefiting competitors such as Vietnam, Bangladesh and China.

"The US customers have already stopped new orders. With these additional tariffs, the exports could come down by 20-30% from September onward," said Pankaj Chadha, president, Engineering Exports Promotion Council.

Chadha added that the government has promised financial aid including increased subsidies on bank loans and support for diversification in the event of financial losses.

"However, exporters see limited scope for diversifying to other markets or selling in the domestic market," he said.

Exports by India's diamond industry have already hit a two-decade low on weak Chinese demand, and now higher tariffs threaten to sever access to its largest market, which accounts for nearly a third of its $28.5 billion annual shipments of gem and jewellery.

Broader economic impact

Private sector analysts warn that a sustained 50% tariff could weigh on India's economy and corporate profits - prompting the steepest earnings downgrades in Asia - even if proposed domestic tax cuts partly cushion the blow.

Capital Economics said last week that if full US tariffs come into force, the hit to India's economic growth would be 0.8 percentage points both this year and next.

India's Foreign Minister S Jaishankar said last week trade talks were ongoing and that Washington's concern over Russian oil purchases was not equally applied to other major buyers such as China and the European Union.

There is no directive from the government so far regarding oil purchases from Russia. Companies will continue to buy oil on the basis of economics, three refining sources said.

Earlier this year, after five rounds of trade negotiations, Indian officials said they were confident of securing a favourable deal with the United States and had even signalled to the media that tariffs could be capped at 15%.

Officials on both sides said a mix of political misjudgment, missed signals and bitterness broke down the deal between the world's biggest and fifth-largest economies, whose bilateral trade is worth over $190 billion.

Indian Prime Minister Narendra Modi has vowed not to compromise the interests of the country's farmers even if there is a heavy price to pay. Modi is also taking steps to improve ties with China with his first visit in seven years planned for the end of the month.