In the recent SBI Research report, it is projected that the imposition of a 25% tariff by the United States will reduce India’s GDP growth for FY26 by 25 to 30 basis points (bps). The tariff will particularly affect electronics, gems and jewelry, pharmaceuticals, and machinery, which collectively make up almost half of India’s exports to the US.
India’s Trade Exposure to the US
India heavily relies on the US as its largest export destination, constituting 20% of its exports in FY25. Despite an earlier 10% tariff, the US share in India’s exports has increased to 22.4% in the current financial year (FYTD 26). The top 10 export destinations, including the US, UAE, Netherlands, UK, China, and others, contribute significantly to India’s exports.
- US accounts for 20% of India’s exports
- Top 10 export destinations make up 53% of India’s total exports
Key Sectors Likely to Be Hit
The 25% tariff is expected to impact key sectors such as:
- Electronics
- Gems and Jewelry
- Pharmaceuticals
- Nuclear Reactors and Machinery
These sectors collectively contribute 49% of India’s total exports to the US. The uniform 25% duty under the new decision may challenge the competitiveness of Indian goods in the American market.
PLI Scheme and GST Reforms Supporting Exports
Despite the challenges posed by the tariff, certain Indian sectors have received support from government policies:
- Smartphone and photovoltaic cell exports surged under the Production Linked Incentive (PLI) scheme
- Benefits from the rationalization of GST on cut and polished diamonds for the gems and jewelry sector
- Robust demand from the US market continues to drive growth in various categories
Key Takeaways for Competitive Exams
- The US tariff is expected to impact India’s GDP growth by 25–30 bps in FY26
- Electronics, gems and jewelry, pharmaceuticals, and machinery are the key sectors likely to be affected
- India’s diversified export portfolio may help mitigate the impact of the tariff
- Government initiatives like the PLI scheme and GST reforms are supporting certain export sectors
