Explainer: Why new US tariffs could hurt Indian exports and what Modi’s willing to risk for farmers

The United States has imposed new tariffs that could reach up to 50%, a rate that is much higher than the ones placed on China or Pakistan, prompting Indian Prime Minister Narendra Modi to respond that he is ready to pay a "heavy price" to protect the farmers of his country.

Despite this, many experts believe these tariffs could have a strong impact on Indian businesses and the stock market, especially those that depend on sending goods to the US.

US President Donald Trump announced an additional 25% tariff on Indian goods on Wednesday, raising the total duty to 50% — among the highest imposed on any US trading partner.

The new tariff, effective 28 August, is meant to penalise India for continuing to buy Russian oil, Trump has said.

Trade talks between India and the US broke down after five rounds of negotiations over disagreement on opening India's vast farm and dairy sectors and stopping Russian oil purchases.

India's foreign ministry has called the US decision "extremely unfortunate" and said it would "take all necessary steps to protect its national interests."

Trade tensions and market uncertainty

The 50% tariff being discussed by US officials is part of a wider move by Donald Trump to increase pressure on trade partners.

Analysts, including those from Nomura, have compared the possible outcome to a "trade embargo" because of how strict and damaging the tariffs could be. If these tariffs are put in place, Indian export industries might suffer major losses.

These higher duties would make Indian goods more expensive in the US, possibly stopping some exports entirely.

According to Emkay Global's Seshadri Sen, this is a tough time for investors, and many are unsure about how the situation will develop. The final trade agreement between India and the US could still change, but right now, there is a lot of worry in the financial world.

Which industries are most at risk?

Many Indian companies could be affected, especially those that rely heavily on the US market. These include:

• Textiles (like Gokaldas and Kitex)
• Chemicals (Camlin, Aarti, Atul)
• Auto parts (BHFC, Suprajit, Sona BLW)

The US makes up around 18% of India's exports and 2.2% of its GDP. Some industries send nearly 30-40% of their goods to the US.

Sectors like textiles, leather, gems and jewellery already operate on very small profit margins, so any extra costs from tariffs could be too much for many companies, especially small businesses.

Impact on US-linked companies in India

There's also concern that Indian companies selling American brands could face problems. Some experts believe there might be public pressure to boycott US products and support Indian-made goods instead.

Companies such as Jubilant Foodworks (which runs Domino's and Dunkin Donuts in India), Devyani International (Burger King), and Varun Beverages (Pepsi) could face a short-term drop in business.

Because of these issues, Indian investors are starting to shift focus.

Experts from SBI Securities recommend looking at sectors that depend more on Indian customers. These include cement, telecom, hospitals, railways, and alcoholic beverages.

Even though the Indian rupee has fallen in value, this may actually help exporters by making their goods cheaper overseas.

Staying calm and looking ahead

Some experts suggest that the falling market could be a chance for long-term investors to buy stocks at a lower price.

Ajay Sen of Emkay Global said that if the market drops more than 5%, it could be a good time to invest.

Dr VK Vijayakumar of Geojit Financial Services urged caution but believes that the market will not panic.

He and others point out that some key sectors like IT, pharmaceuticals, and electronics are not affected by these tariffs.

Modi's message to farmers

As the country prepares for what might be a serious trade conflict, Prime Minister Modi's statement shows where his priorities lie.

He said he is prepared to face the economic cost of the trade war if it means protecting India's farmers.

"For us, our farmers' welfare is supreme," Modi said at an event in New Delhi. "India will never compromise on the well-being of its farmers, dairy [sector] and fishermen. And I know personally I will have to pay a heavy price for it."

This message may offer some hope to rural communities and shows the government's focus on protecting domestic interests, even during global economic challenges.

While Modi did not explicitly mention the US or the collapsed trade talks, his comments marked a clear defence of India's position.

With 21 days left before any US tariff decision is finalised, both investors and industries are waiting to see how events unfold.

For now, India is facing a period of uncertainty, but many believe the country's strong local economy can weather the storm.

Written with inputs taken from Reuters and the Economic Times India.