India to defend interest, pursue US talks in parallel

India has vowed to defend its national interest after the US imposed stiff tariffs on its goods, even as it works to conclude a trade deal that’s in the best interests of both. On Thursday, economists counted the cost of tariffs on India’s exports and growth, even as the stock market took the news in its stride.

“The government attaches utmost importance to protecting and promoting the welfare of our farmers, workers, entrepreneurs, exporters, MSMEs and all sections of industry. We will take all necessary steps to secure and advance our national interest,” commerce minister Piyush Goyal said in the parliament. The government is examining the implications of these tariffs and is engaged with all stakeholders, he said.

Meanwhile, US President Donald Trump ratcheted up his rhetoric, a day after he announced a 25% tariff plus a penalty on Indian goods from 1 August. India and Russia “can take their dead economies down together”, Trump commented, expressing displeasure over the continued trade and defence links between the two countries.

Trade talks

Trump’s announcement came ahead of a US trade team visiting India from 25 August. Despite the sour remarks, India will keep its focus on discussions with the US for a bilateral trade agreement (BTA) with a mutually beneficial outcome, said two people who are directly involved in the process. New Delhi has chosen not to retaliate, Mint reported on Wednesday.

On Thursday, India’s Nifty 50 index closed at 24,768.35, down 86.70 points or 0.35%, amid volatility triggered by US tariff concerns.

Preliminary analysis suggests India could face a loss of nearly $10 billion in export value to the US if the tariffs stay for long, the first of the two people said, requesting anonymity. The loss would be a significant setback, with labour-intensive sectors such as textiles, footwear, gems and jewellery, and electronics likely to be hit the hardest.

US trade surplus

The US is not only India’s largest trading partner but also one of the few major economies with which India enjoys a significant trade surplus. India’s goods trade surplus with the US rose to $41.18 billion in fiscal year 2025 (FY25), up 16.6% from $35.33 billion a year ago. The increase was driven by an 11.6% rise in exports to $86.51 billion, while imports from the US grew 7.4% to $45.33 billion. In comparison, India’s overall goods trade reported a deficit of $282.8 billion in FY25.

According to government estimates, about 75.3% of India’s merchandise exports to the US could be impacted by the proposed tariffs.

“There will be no change in priorities and strategies, which will remain the same as during the last five rounds of face-to-face talks that began in March following the joint statement issued by the leadership of both nations on 13 February,” said the second person mentioned above.

Analysts agree that the tariffs will negatively impact India’s GDP growth, with Goldman Sachs Economic Research projecting a potential direct hit of 0.2-0.3 percentage points on its CY25 real GDP growth estimate. While acknowledging the potential for a short-term hit, analysts like V.K. Vijayakumar from Geojit Investments and Aditi Raman from Moody’s Analytics said that trade talks might lead to a lower final tariff rate and that India’s domestically-driven economy offers some resilience against significant long-term impact.

Making for the world

Madhavi Arora, chief economist at Emkay Global Financial Services, said the tariff would significantly raise the effective US duty on Indian goods from an average of 10.7% to about 22%, after factoring in higher duties on exempted sectors such as copper, steel and aluminium. This rate, she added, is already higher than what most Asian economies face, barring China. India exported goods worth $87 billion to the US in FY25, accounting for 2.3% of GDP, said Arora. Of this, engineering goods, electronics, drugs and pharmaceuticals, gems and jewellery, and textiles made up $65 billion.

Meanwhile, India should continue to focus on manufacturing for the world, but with a more diversified “US-plus” export market, even as the US tariff and penalty for trade with Russia have bared vulnerabilities, said experts.

“The latest set of tariff announcements has indeed exposed vulnerabilities in export-dependent growth models, necessitating a strategic recalibration of India’s manufacturing framework,” said Rishi Shah, partner and economic advisory services leader, Grant Thornton Bharat. “Our ‘Make in India’ initiative’s emphasis on scaling production capacity remains fundamentally sound, but the current trade environment underscores the need for a more nuanced approach centred on innovation-led industrial development.” India must now elevate industrial security to the “same strategic priority we’ve accorded food security and energy security over the past decades”, said Shah.

Trade pact

On the issue of penalties for buying Russian oil, the second person said that it is not yet clear, as it remains to be seen in what form they might be imposed.

To be sure, Trump had pressed India to change its stance and allow greater access to American goods in the Indian market. Mint was the first to report on 11 June that US has changed its stance and was firm on the demand to open critical sectors like agriculture, dairy and access to US’s GM seeds and agricultural products as well as digital trade.

Negotiations for a bilateral trade agreement (BTA) began in March 2025 and have since progressed through five rounds of physical meetings and multiple virtual sessions. The Terms of Reference for the agreement were finalized on 29 March during the first round in New Delhi, Goyal told Parliament. The government is currently examining the implications of the steep tariffs and is actively consulting with exporters and industry stakeholders to assess the impact, he said.

Agri hit

The revised tariff is expected to impact agricultural exports to the US significantly. “This sudden hike could seriously dent profitability and slow down export momentum for products like basmati rice, pulses, grapes, and makhana,” said Anil Kumar SG, founder of Samunnati, an agri value chain solutions provider.

However, Apparel Export Promotion Council chairman Sudhir Sekhri believes that the 25% tariff is not a major cause for concern as long as tariffs on competing countries like Vietnam and Bangladesh are not revised downward from current levels. “Apparel exports are expected to slow down until the announcement of an interim BTA, which we hope will be concluded between October and December 2025. The penalty remains a grey area, and we expect the government to negotiate this with the US,” Sekhri said.

The US remains a key market for Indian ready-made garments, accounting for 33% of India’s total garment exports in 2024. India’s total merchandise exports, excluding petroleum, reached a record $374.1 billion in FY25, up 6% from $352.9 billion a year earlier.