How Do US Tariffs Impact India?

US tariffs are taxes imposed by the United States government on imported goods and services. While their stated purpose is to protect domestic industries and discourage excessive imports, they often create ripple effects across global supply chains. For India, which maintains a diverse export base to the US, recent tariff increases have significant implications. By raising the cost of Indian goods in the US market, these tariffs make Indian exports less competitive against those from countries with lower or no tariffs. The result is a direct impact on several Indian industries—most notably textiles and apparel, gems and jewelry, pharmaceuticals, engineering goods, auto components, and FMCG exports. Understanding these shifts is crucial for businesses, policymakers, and stakeholders alike.

Comparative Tariff Structure

Sectoral Impact

Textiles and Apparel

India's textile and apparel sector, with annual exports of around USD 35 billion, sends nearly one-third of its shipments to the US. Roughly 25% of cloth produced in India is exported, with the rest serving the domestic market. The new 50% tariff drastically reduces competitiveness and has already triggered order cancellations in hubs such as Tiruppur (Tamil Nadu) and parts of Gujarat. Cotton yarn purchases have dipped sharply—by as much as 50% in some cases— according to trade associations. Over the longer term, US buyers may redirect sourcing to Bangladesh or Vietnam, countries with significantly lower tariff exposure.

Gems and Jewelry

The US is the largest single market for India's gems and jewelry exports, accounting for over 30% of sales. India's leadership in diamond cutting and polishing faces risk as buyers consider alternate centers such as Bangkok and Hong Kong. Slower exports not only threaten jobs but also strain working capital. With highvalue inventory like diamonds and gold tied up, liquidity becomes a serious concern for Indian manufacturers.

Auto Components

Indian auto component makers are deeply embedded in the global supply chain, supplying everything from engine and transmission parts to electronics. Roughly 27% of India's autocomponent exports go to the US. Companies like Bharat Forge and Motherson Group rely on the US for 25–30% of export revenues. With tariffs in place, US OEMs—including Ford, GM, Stellantis, Tesla, and Tier-1 suppliers—may pressure Indian exporters to absorb costs or shift sourcing. This creates uncertainty, squeezes margins, and may delay new capacity expansion projects in India.

Electronics and Appliances

While smartphones, laptops, and tablets are currently exempt—providing relief since they form 70% of India's electronics exports—other products such as chargers, inverters, and transformer parts face the full 50% tariff. Nearly USD 4 billion worth of electronics exports could be directly impacted. The industry is also worried that tariffs may extend to semiconductors. Such a move would not only affect current trade but also jeopardize India's ambition to build a USD 20–30 billion semiconductor ecosystem.

Agriculture and Leather

Agricultural products like onions, which already face tariffs of over 25%, are now hit with rates above 50%. This makes Indian produce far less attractive in the US market. Similarly, the leather and footwear sector—already battling thin margins—is severely challenged by the sharp jump in tariff rates, ranging between 45% and 54% for footwear.

Macroeconomic Impact

• GDP Growth: According to Morgan Stanley, if tariffs remain in place for a full year, India's GDP growth could slow by 0.4%–0.8%. The estimates account for both direct sectoral impacts and secondary effects across supply chains.
• Foreign Reserves: Tariffs reduce dollar inflows, weakening the Rupee. In August 2025, reserves fell by USD 9.3 billion in a single week as the RBI intervened. A later rebound of USD 4.7 billion came largely from revaluation gains on gold and a weaker dollar, but intervention pressure remains high.
• Foreign Institutional Investment (FII): FIIs pulled over INR 270 billion (~USD 3.2 billion) from Indian equities in just nine days following tariff announcements. The combination of weaker earnings outlooks, rupee depreciation, and trade tensions contributed to this sell-off.

The Accounting Minefield: Ind AS Implications

The operational and financial shocks from the steep US tariffs cannot be ignored in Indian companies' financial reporting. For entities preparing financial statements under Ind AS, the tariffs trigger several accounting considerations that alter recognition, measurement, and disclosure. Below is a summary of where the impact is most likely to be felt.

• Ind AS 1: Going Concern: Companies with significant US exposure must evaluate whether tariffs create material uncertainties about their ability to continue operations. If so, disclosures around mitigation plans and risks are mandatory.
• Ind AS 2: Inventories: Net Realizable Value (NRV) adjustments will hit exporters hardest where inventory is US-specific (e.g., apparel with US labeling, auto parts for US models). Companies will need to recognize writedowns, immediately reducing profits.
• Ind AS 36: Impairment of Assets: Factories and production lines primarily serving the US market will require impairment testing, as projected cash flows fall. Idle machinery and lower order books are clear impairment triggers.
• Ind AS 37: Onerous contracts: Several exporters have locked themselves into fixedprice supply agreements. When the unavoidable costs of fulfilling these contracts exceed the expected benefits, the contracts are deemed onerous. Ind AS 37 requires recognition of a provision for the expected loss immediately, bringing tomorrow's losses into today's accounts
• Ind AS 115: Revenue recognition: Exporters may be forced to offer discounts, rebates, or retrospective concessions to retain US customers. Under Ind AS 115, these price adjustments are treated as variable consideration and must be reduced from revenue already recognized. Long-term contracts that are re-priced or renegotiated may qualify as contract modifications, requiring reassessment of how revenue is measured and allocated.
• Ind AS 116: Leases and Right-of-Use Assets: Export-oriented factories and warehouses taken on lease will be required to check their underutilization. Right-of-use assets must be tested for impairment, and lease modifications or early terminations will require careful accounting under Ind AS 116.

Strategic and Policy Considerations

Government Response

• Potential adjustments under export incentive schemes like RoDTEP to offset some losses.
• Diplomatic engagement with the US to resolve trade tensions and reduce tariff exposure.
• Broader efforts to diversify trade ties with the EU, ASEAN, and Middle East to reduce reliance on the US.

A CFO's Outlook: Navigating the Tariff Storm

The US tariff shock is not just an external hurdle - it is a test of financial leadership. For CFOs, four priorities stand out:

• Protect Liquidity: Stress-test cash flows, secure credit lines, and manage working capital aggressively. In today's climate, cash is survival.
• Forecasting: Recognize impairments, writedowns, and provisions promptly. Provide stakeholders with transparent scenario analyses and clear disclosures - credibility is currency.
• Drive Strategic Agility: Decide whether to pass on costs, renegotiate contracts, or diversify markets. Each choice shapes capital allocation and long-term competitiveness.
• Embed Resilience in Governance: Tighten FX risk monitoring, strengthen credit checks, and reinforce internal controls. A resilient finance function is the foundation for recovery.

Tariffs may disrupt margins today, but they also give CFOs a chance to step up as architects of resilience - balancing financial discipline with strategic foresight.

Conclusion

The escalation of US tariffs represents both an immediate shock and a long-term challenge for Indian businesses. The near-term effects are visible in canceled orders, squeezed margins, and slower growth. The longer-term risks include loss of market share, supply chain realignments, and pressure on India's financial stability.

For companies, this is a test of resilience: diversifying markets, optimizing costs, and ensuring financial transparency. For policymakers, it is an opportunity to strengthen trade diplomacy, recalibrate export incentives, and promote India's integration into alternative global value chains. The combined response of industry and government will shape India's ability to navigate this evolving trade environment.

References

• Times of India (Cotton yarn purchase dips 50% after US tariff hit)
• Reuters (India's polished diamond exports hit two-decade low)
• The Economic Times (Bharat Forge cautious on US export business; Tariff Shock on auto parts)
• Times of India (Electronics sector faces $20–30 billion potential loss)
• The Economic Times (US tariffs may hit India's growth by up to 0.8%)
• Reuters (India's FX reserves drop $9 billion due to tariff-driven rupee defence)
• The Economic Times (Revaluation gains lift India's forex kitty)
• Times of India (FPI selloff due to US tariffs and rupee depreciation)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.