50% 'penalty' tariffs to come into effect from Aug 27 on India, which sectors will be hit the hardest?

The steep 50 per cent tariff on Indian goods entering the United States will take effect from August 27, severely impacting several labour-intensive export sectors such as shrimp, apparel, leather and gems & jewellery.

The high additional import duties would affect more than half of $86 billion Indian exports to America, while the remaining items, including pharmaceuticals, electronics will continue to be exempt from the levy.

According to a US notification, "The duties... are effective with respect to products of India that are entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 am Eastern Daylight Time on August 27, 2025" (or 9:31 AM IST August 27).

At present, a 25 per cent additional duty is already in place on Indian goods entering the US market. Another 25 per cent will be slapped as a penalty for purchasing Russian crude oil and military equipment.

According to exporters, this "prohibitive" duty will drive out a number of Indian goods from the US market, as major competing countries like Bangladesh, Vietnam, Sri Lanka, Cambodia, and Indonesia have much lower duty on their goods.

Certain firms are front-loading the consignments to America before the increased tariffs take effect. This was reflected in July's trade data. India's goods exports to the US rose 19.94 per cent to USD 8.01 billion in July, while imports increased 13.78 per cent to about USD 4.55 billion during the month.

In FY25, India’s merchandise exports to the US stood at USD 87 billion.

Electronic Goods

India's Electronic goods accounted for largest share of exports at 17.6 per cent. However, select items from this sector have been temporarily exempted from the 25 per cent US tariffs.

Gems & Jewellery

This sector may face monumental changes as US accounts for nearly 33 per cent of India’s total gems & jewellery exports. Moreover, the polished diamond segment might be affected harder, given that it is already facing pressure from the lab-grown diamonds segment.

Textiles

Textiles account for nearly 26 per cent of India's textiles ( excluding readymade garments.

Mithileshwar Thakur Secretary General, AEPC (Apparel Export Promotion Council), said the textiles sector, with exports of USD 10.3 billion, is one of the worst-impacted sectors.

DH had earlier reported the imposition of 25 per cent tariff along with an unspecified penalty by the United States, is likely to severely impact India’s exports of textiles and apparels (T&A) to the US market.

Pharma

India's pharma exports to US have also been excluded from the tariffs. US accounts for nearly 35 per cent of India's pharma products.

India has one of the highest numbers of US FDA-approved manufacturing facilities catering to the generic medicine requirements of the US.

Exporters seek help

Exporter groups estimate hikes could affect nearly 55 per cent 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 per cent 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.

(with inputs from PTI, Reuters)