Tirupur’s readymade garment makers and Surat’s diamond polishers are set to bear the brunt of the imposition of higher tariffs by the US, according to a release issued by Crisil. It will significantly impact micro, small and medium enterprises (MSMEs), which account for as much as 45% of India's total exports.
Currently, the US levies an ad valorem duty of 25% on Indian goods. However, it has imposed an additional 25% tariff that will take effect from August 27, bringing the total tariff on Indian products to a substantial 50%. The additional ad valorem, if implemented, will have meaningful impact on certain sectors and remains monitorable.
The textiles, gems and jewellery and seafood industries, which account for 25% of India’s total exports to the US, are likely to be the most affected. MSMEs have more than 70% share in these sectors and will be hit hard. Another sector likely to face the heat is chemicals, where MSMEs have a 40% share.
Says Pushan Sharma, Director, Crisil Intelligence, “Partial absorption of the increased product prices due to higher tariffs will put pressure on MSMEs, squeeze their already-slim margins and pose a material challenge to their competitiveness. For instance, those into readymade garments (RMG) are expected to lose ground in the US
as the tariff increases to 61%, including 50% additional ad valorem duty, compared with peers in Bangladesh and Vietnam tariffed at 31%. The Tirupur cluster, which accounts for over 30% of India's RMG exports, will be severely impacted as ~30% of its exports are to the US.”
Similarly, in the gems and jewellery sector, MSMEs in Surat, which dominates diamond exports with over 80% share, will feel the tariff shock. As such, diamonds account for over half of the country’s gems and jewellery exports, and the US is a major consumer of Indian diamonds, comprising nearly a third of exports.
Seafood MSMEs will be disadvantaged following the imposition of a 50% tariff as they face severe competition from Ecuador, which is geographically closer to the US and has been levied a much lower tariff of 15%.
In chemicals, too, India faces stiff competition from Japan and South Korea, which have lower tariffs. In auto components, the impact is expected to be marginally unfavourable as the US accounts for only 3.5% of India's total production. MSME suppliers, which provide components to larger players that export to the US, will be impacted. The impact will be particularly pronounced for MSMEs supplying components for gearbox and transmission equipment, which account for a fourth of India's auto component exports and have a significant US exposure of 40%.
To be sure, the tariff hikes come at a particularly challenging time for most of these sectors. For instance, RMG exports have recovered after declining 7% on-year in fiscal 2024 and logged 13% on-year growth in fiscal 2025, albeit on a low base. The gems and jewellery sector has seen exports decline 10%-a-year over the past two fiscals on a compound annual growth rate basis.
Of the five sectors expected to see meaningful impact, gems and jewellery has the highest exposure to the US at ~$10 billion. While we expect export volumes to contract, the impact may not be fully reflected in revenue terms because of a likely runup in gold prices and sustained domestic demand.
Currently, the US levies an ad valorem duty of 25% on Indian goods. However, it has imposed an additional 25% tariff that will take effect from August 27, bringing the total tariff on Indian products to a substantial 50%. The additional ad valorem, if implemented, will have meaningful impact on certain sectors and remains monitorable.
The textiles, gems and jewellery and seafood industries, which account for 25% of India’s total exports to the US, are likely to be the most affected. MSMEs have more than 70% share in these sectors and will be hit hard. Another sector likely to face the heat is chemicals, where MSMEs have a 40% share.
Says Pushan Sharma, Director, Crisil Intelligence, “Partial absorption of the increased product prices due to higher tariffs will put pressure on MSMEs, squeeze their already-slim margins and pose a material challenge to their competitiveness. For instance, those into readymade garments (RMG) are expected to lose ground in the US
as the tariff increases to 61%, including 50% additional ad valorem duty, compared with peers in Bangladesh and Vietnam tariffed at 31%. The Tirupur cluster, which accounts for over 30% of India's RMG exports, will be severely impacted as ~30% of its exports are to the US.”
Similarly, in the gems and jewellery sector, MSMEs in Surat, which dominates diamond exports with over 80% share, will feel the tariff shock. As such, diamonds account for over half of the country’s gems and jewellery exports, and the US is a major consumer of Indian diamonds, comprising nearly a third of exports.
Seafood MSMEs will be disadvantaged following the imposition of a 50% tariff as they face severe competition from Ecuador, which is geographically closer to the US and has been levied a much lower tariff of 15%.
In chemicals, too, India faces stiff competition from Japan and South Korea, which have lower tariffs. In auto components, the impact is expected to be marginally unfavourable as the US accounts for only 3.5% of India's total production. MSME suppliers, which provide components to larger players that export to the US, will be impacted. The impact will be particularly pronounced for MSMEs supplying components for gearbox and transmission equipment, which account for a fourth of India's auto component exports and have a significant US exposure of 40%.
To be sure, the tariff hikes come at a particularly challenging time for most of these sectors. For instance, RMG exports have recovered after declining 7% on-year in fiscal 2024 and logged 13% on-year growth in fiscal 2025, albeit on a low base. The gems and jewellery sector has seen exports decline 10%-a-year over the past two fiscals on a compound annual growth rate basis.
Of the five sectors expected to see meaningful impact, gems and jewellery has the highest exposure to the US at ~$10 billion. While we expect export volumes to contract, the impact may not be fully reflected in revenue terms because of a likely runup in gold prices and sustained domestic demand.
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