India faces a major trade disruption after the US imposed a 50% tariff on Indian exports, threatening US$ 49 billion and heavily impacting sectors like carpets, apparel, gems, and made-ups. To mitigate risks, the government has rolled out a phased strategy: short-term measures include liquidity support, SEZ relaxations, GST rationalisation, e-commerce export hubs, and import substitution; medium- and long-term actions focus on FTA-driven diversification, cluster-market linkages, digital trade infrastructure like BharatTradeNet, supply chain resilience, , and PLI-backed manufacturing. Together, these measures aim to cushion exporters from shocks while driving competitiveness and positioning India strongly in global trade.
India is currently facing a major disruption in trade relations after the United States imposed a steep 50% reciprocal tariff on a broad range of Indian products, effective August 27. Marking the highest duty imposed on any nation, this move endangers nearly US$ 49 billion worth of exports, representing over 55% of India’s shipments to the US. While the United States represents about 18–20% of India’s merchandise exports, the dependence is much sharper in specific sectors. Nearly 60% of India’s carpet exports, 50% of made-ups, 30% of gems and jewellery, and 40% of apparel shipments are directed to the United States.
Recognising the potential fallout for jobs, production stability, and foreign exchange earnings, the Government of India has adopted a comprehensive, multi-tiered strategy that addresses immediate needs while laying the foundation for long-term competitiveness and resilience in the global economy.
The Department of Commerce has structured the response along short-, medium-, and long-term timelines, each phase guided by key principles. These include:
The strategy underscores India’s status as a domestically anchored economy. While exports remain vital, merchandise exports of US$ 438 billion in 2024–25 represent just over 10% of the US$ 4.1 trillion GDP. The priority is to shield exporters from abrupt shocks while advancing long-term structural goals.
In the short term, exporters are expected to face working capital pressure due to delayed payments, cancelled orders, and longer receivable cycles. To avert insolvencies and safeguard employment, the government is preparing targeted liquidity support, factoring arrangements, and trade finance access to help exporters stay afloat until alternative markets are secured.
One of the flagship measures in this phase is the Export Promotion Mission, announced in the Union Budget for 2025–26 and now under appraisal. The mission has two core components:
In parallel, the government is also considering policy relaxations for SEZs. By helping units sustain production and operate at scale, these measures can spread costs over larger output, boost efficiency, and make Indian exports more competitive in the long term.
GST rationalisation, involving a reduction in the number of slabs and shifting many goods to lower tax brackets, is expected to stimulate demand in the domestic market. This will open fresh opportunities for exporters to sell more at home, while also improving their global competitiveness by lowering input cost burdens.
The Government is rolling out E-Commerce Export Hubs (ECEHs) to streamline return logistics, inter-state movement, and GST refunds. In parallel, the Inventory Model for E-Commerce Exports will enable third-party facilitators to handle compliance and logistics, allowing MSMEs to concentrate on quality enhancement and brand building.
At the same time, complementary reforms are underway, including:
Also, recognising that reduced exports could leave capacity underutilised, the government is encouraging targeted import substitution. The government will-
India is focusing on diversification and maximising the benefits of trade agreements. Free trade agreements recently concluded with the United Kingdom and EFTA, along with ongoing negotiations with the European Union, New Zealand, Peru, and Chile, create significant opportunities for exporters. The medium-term strategy focuses on:
A phased export diversification framework has also been developed, identifying critical HS codes, key clusters, and new market opportunities. In the short run, India aims to boost exports to established markets like the EU, UK, UAE, Japan, Canada, and Australia. Over the longer term, it plans to explore new opportunities in under-explored regions such as Latin America, Africa, Eastern Europe, and East Asia.
To drive diversification, the government is strengthening digital trade infrastructure through the BharatTradeNet (BTN) initiative. BTN will create a unified, paperless, and reliable digital public platform for trade, ensuring global interoperability and recognition of electronic documents under UNCITRAL’s MLETR and MLIT Model Laws. A dedicated special purpose vehicle (SPV) will manage secure systems, standards, and stakeholder capacity building. By reducing compliance costs, improving MSME financing, and adopting global best practices, BTN will future-proof India’s export ecosystem, with a draft law and pilot projects underway.
India is treating the disruption not only as a challenge but also as an opportunity to strengthen supply chain resilience and enhance strategic autonomy.
The Government intends to leverage the current disruption to attract supply chain diversification investments from global companies pursuing “China +1” or similar strategies. Simultaneously, it will strengthen domestic capabilities in critical inputs such as semiconductors, specialty chemicals, and advanced textiles by utilising ongoing PLI schemes.
Efforts will also focus on forging bilateral supply chain partnerships with trusted countries and building resilient logistics systems through port-led development, multimodal transport integration, and digitised customs processes. These measures will reduce transaction costs, improve efficiency, and reinforce India’s role as a resilient participant in global value chains.
Significantly, Trump’s tariff war has emphasized India’s need for strategic autonomy and independence.
In the wake of Trump’s tariffs, India and China have taken a key step toward moving beyond the 2020 Galwan Valley clash, agreeing to intensify efforts to resolve their long-standing border disputes dating back to the colonial era. The two nations share a 3,800 km (2,400-mile) disputed border dating to the 1950s. Recently, China eased restrictions on urea exports to India, the world’s largest fertilizer importer. Although initial shipments are small, trade is expected to grow, easing global shortages and stabilizing prices.
India has also announced dedicated outreach programmes in 40 key markets, including the UK, Japan, and South Korea, to boost textile exports. The initiative will also target Germany, France, Italy, Spain, the Netherlands, Poland, Canada, Mexico, Russia, Belgium, Turkey, the UAE, and Australia. Collectively, these countries import over US$ 590 billion worth of textiles and apparel each year, presenting significant opportunities for India to expand its market share, which currently hovers around just 5–6%.
In conclusion, the US 50% tariff poses significant challenges to India’s exports, but the government’s strategy combines immediate relief with long-term resilience. Short-term measures include liquidity support, SEZ relaxations, GST rationalisation, and E-Commerce Export Hubs, while medium- and long-term initiatives focus on FTA-driven diversification, cluster-to-market mapping, BharatTradeNet, and PLI-supported supply chains. Coupled with global partnerships and outreach in 40 key markets, these efforts aim to protect employment, enhance competitiveness, and expand India’s global market presence.
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