The 50 percent tariff on Indian goods, which is expected to have a major impact on billion-dollar trade and put thousands of jobs at risk in the most populous country in the world, went into effect on Wednesday.
On July 30th, the US first imposed a 25% tariff on India, followed by an additional 25% a week later, citing New Delhi’s purchase of Russian oil.
A wide range of goods will now be subject to the new 50 percent rate, which is one of the highest tariffs in the US, starting with jewelry and jewelry, and moving goods like furniture and shoes.
India’s ability to compete with China for its exports will be hampered by the crushing tariffs, which will undermine Prime Minister Narendra Modi’s plans to establish a major manufacturing hub. With annual bilateral trade worth a whopping $ 212 billion, the US was India’s largest trading partner until recently.
What sectors will suffer the most, and how will US-Indian relations be affected?
Which industries will suffer the most?
In response to today’s announcement, the Global Trade Research Initiative (GTRI), a think tank based in New Delhi, reported to The Financial Times newspaper that Indian exports to the US could decrease from $ 86.5 billion this year to $ 50 billion in 2026.
The GTRI predicted that the sectors, which are “enemy of hundreds of thousands of jobs,” would be the most affected.
According to MK Venu, the original editor of The Wire news site, “there will be a huge impact.”
He continued, “The US is the largest trading partner for India, while India is not a major trading partner for the US,” adding that exports would suffer in the fields of textiles, clothing, gems and jewelry, fisheries, leather goods, and crafts.
These are “very, very labor-intensive” and “small companies,” Venu said, talking about the industries that are affected by the tariffs. They will lose business to the economies of Vietnam, Bangladesh, Pakistan, and other East Asian nations.
Which sectors will be exempt?
Due to the importance of generic drugs in providing affordable healthcare in India, immediate tariff increases have been exempted from the Indian pharmaceutical industry. About half of the US’s imports of generic drugs are from India.
Indian pharmaceutical exports to the US amounted to about $ 8.7 billion in 2024.
In addition, separate, sector-specific US tariffs will apply to consumer electronics and semiconductors. Finally, passenger vehicle imports made of aluminum and steel will also be subject to tariffs distinct from the general 50 percent rate.
What steps is the Indian government taking to lessen the impact?
In response to the tariff increases, Prime Minister Modi has pledged to support farmers, lower taxes, and support self-reliance.
In his Independence Day speech at New Delhi’s Red Fort, Modi said that India should become self-sufficient, not out of desperation, but out of pride. Economic selfishness is rising globally, and we must stop and cry over our problems.
According to Faisal Ahmed, a professor of geopolitics at the Fore School of Management in New Delhi, increasing India’s domestic product potential is not new. During the COVID-19 pandemic, Modi made the policy choice. According to Ahmed, Trump’s tariffs appear to be accelerating that process.
The Indian prime minister also mentioned that businesses could soon anticipate a “massive tax bonanza” in addition to the $12 billion income tax giveaway that was announced earlier this year. Additionally, it is understood that Delhi intends to slash and streamline the goods and services tax.
This could help India’s economy maintain some of its growth momentum, along with a raise to the salaries of nearly five million state employees and six million pensioners (which will begin in 2014).
A representative from the Indian Commerce Ministry earlier this week told Reuters that tariff-hit exporters would receive financial aid and other incentives to expand into markets like Latin America and the Middle East.
There is no real policy, according to Venu, who was also a former Financial Express newspaper editor. The central bank and the prime minister have provided assurances.
Who will provide the funding for the subsidy? Will the large companies or the taxpayers profit from the Russian oil exports? Therefore, the details of how the subsidies would be provided are unclear. Even with subsidies, it won’t be enough to cover such a sizable hit, Venu told Al Jazeera from New Delhi.
He claimed that the government had not made any preparations. Because we knew that Trump would not relent, he would punish India for buying Russian oil, India should have had a policy, it should have done its homework, and it should have had one.
According to Ahmed from the Fore School of Management, the tariffs “shouldn’t have a significant impact on India’s GDP… probably around 1 percent.”
According to Teresa John, Nirmal Bank’s lead economist, “we estimate a]negative] impact of about $ 36 billion, or 0.9 percent of GDP,” she told Reuters.
The International Monetary Fund predicted that India’s economy would grow by 6.4% in 2026 earlier this year. That might alter.
Trump’s justification for tariffs: what justification?
Following Trump’s demands that India stop its imports of Russian oil and gas, negotiations to end a trade war broke down after five rounds of negotiations.
India has continued to purchase Russian crude this year despite the ongoing threat of higher US tariffs, though at lower volumes.
Due to Russia’s and the West’s geopolitical rivalry, New Delhi has also been hit. Top Trump figures, including US Secretary of State Scott Bessent, have accused India of funding Ukraine’s conflict. He noted that prior to the Ukraine war, India’s oil imports decreased to 7%. He called India “profiteering.”
New Delhi’s foreign ministry stated that it would “take all necessary steps to protect its national interests,” and that the nation’s 1.4 billion people’s energy needs and market forces were the main drivers of Russian oil imports.
When both the European Union and China, with whom Trump has brokered trade agreements, continue to import energy from Russia, New Delhi has also accused Washington of selectively targeting India for purchasing Russian oil.
In another move, New Delhi pledged to reduce US import taxes and increase defense spending in an effort to lessen Trump’s resentment over trade imbalances. However, it refused to allow US imports to enter its vast farming and dairy industry.
Farmers who were unhappy with Modi feared that the government would lower its agricultural tariffs as part of a deal with Trump over the course of the year. However, Modi defended the hundreds of millions of Indians who work in the politically sensitive agricultural sector.
To put this into perspective, India’s simple average tariff on agricultural imports was 39 percent at the end of 2024. In contrast, the US only imposed a simple average tariff rate of 4% on agricultural imports. Trump was upset about that.
Trump has been highlighting the high tariffs that India has imposed, sparking a global economic war.
“India has been, in our opinion, the most highly regarded country in the world.” During Prime Minister Modi’s February visit to the US, Trump said, “It’s very difficult to sell to India because they have trade barriers and very strong tariffs.”
Source: Aljazeera
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