Exports To US Plunge 16.3% Amid Soaring Tariffs; ICRA Ups FY26 GDP Forecast To 6.5% On GST Reform Hopes
Amid the imposition of US tariffs on Indian exports, ICRA has forecast FY26 GDP growth forecast to 6.5 percent from 6 courtesy GST reforms.
Published : September 17, 2025 at 5:10 PM IST
By Saurabh Shukla
New Delhi: India’s exports to the US have declined for the third straight month, with August shipments plunging 16.3 percent to 6.7 billion dollars as tariffs soared to 50 percent.
The steep drop underscores mounting pressure on Indian exporters navigating rising trade barriers. Despite the setback ICRA(Investment Information and Credit Rating Agency) has raised India’s FY26 GDP growth forecast to 6.5 percent from 6, citing GST rationalisation as a potential buffer. However with profitability under strain, near-term recovery will hinge on timely policy support and diversification into new markets.
According to a Global Trade Research Initiative (GTRI) report, August shipments to the US plunged to 6.7 billion dollars, down 16.3 percent from July — the steepest monthly fall of 2025 as US duties doubled to 50 percent by month’s end. While in July, exports dip 3.6 percent to 8 billion dollars over June, which saw a 5.7 percent decline to 8.3 billion dollars over May. May was the last month of growth, rising 4.8 percent over April to 8.8 billion dollars. April, 2025 exports were $8.4 billion.
According to Founder of GTRI Ajay Srivastava, the impact is not evenly spread. Roughly one-third of India’s exports including pharmaceuticals, smartphones to the US are tariff exempt, which means the effective hit on tariff-exposed goods is far deeper than headline figures suggest. Labor intensive sectors like apparel, gems and jewelry, leather, shrimp, and carpets are under severe stress because the U.S. accounts for 30–60 percent or more of their global exports.
According to GTRI estimates, if the 50 percent tariffs remain through the end of FY 2026, India could lose $30–35 billion in U.S. exports — a major blow considering the US accounts for nearly 20 percent of India’s goods exports.
Srivastava also suggested that as industry groups are pressing the Indian Government for immediate support, suggested measures like interest rate subsidies under the interest equalization scheme, faster duty remission under export promotion schemes and liquidity assistance to prevent a wave of factory closures. While the government has cut GST rates on a number of products to boost consumption, export specific measures are yet to be announced. Without quick relief, the prolonged tariff wall could lead to job losses and weaken its overall trade performance heading into 2026, he added.
The imposition of steep tariffs by the US has positioned India among the most heavily tariffed nations globally, significantly eroding its competitiveness across major export categories. Following the US government’s announcement of a 25% reciprocal tariff on Indian imports effective August 7, 2025, an additional 25% penalty tariff was levied on August 27, 2025. The cumulative 50% tariff burden—substantially higher than that faced by exporters from countries like China, Vietnam, Bangladesh, and Japan—has placed Indian exporters at a sharp disadvantage in global trade.
According to a report 'Indian exporters to face uncertain times as sharp increase in tariffs is likely to weigh on earnings', prepared by ICRA, Indian exports to the US span over 140 product categories, underlining the criticality of this trade relationship. The report suggests that with the elevated tariff structure, sectors such as auto components, metals, chemicals, textiles, cut and polished diamonds (CPD), seafood and footwear and leather products are expected to witness margin pressures and demand slowdown. While some industries appear capable of mitigating the impact, others face pronounced challenges that may weigh on earnings through FY2026.
Near-term sectoral outlook
Auto Components: Exports account for 30 percent of industry revenues with the US contributing 27 percent. While Indian players are disadvantaged against Asian peers facing lower tariffs (15 to 30 percent), several exporters are mitigating the impact by diversifying markets, enhancing value addition, and leveraging subsidiaries in tariff exempt geographies such as Mexico and Europe. Most companies report minimal immediate impact, supported by cost pass-through strategies and customer stickiness.
Metals: Despite tariffs no significant volume disruption has been observed. Companies have managed a full pass-through of duties to US buyers, aided by limited domestic US manufacturing capabilities in specialised products. However a potential global slowdown triggered by tariff wars and weaker LME prices could exert pressure on the sector’s margins.
Chemicals and Agrochemicals: With the US accounting for 10 to 18 percent of India’s chemical exports the sharp tariff differential with competing nations raises profitability risks. Most companies have adopted a wait and watch approach. Though diversification into other geographies and niche applications provides partial insulation.
Textiles: The US accounts for one-third of Indian apparel exports and nearly 60 percent of home textile exports. Following tariff hikes India has now become less competitive compared to peers like Vietnam and Bangladesh. Apparel exporters are expected to witness a 6 to 9 percent revenue decline in FY2026, alongside margin contraction of 2 to 3 percent as cost pass through remains partial.
Cut and Polished Diamonds: With 36 percent of exports directed to the US, diamantaires face demand contraction. While re-routing strategies through trading hubs like Dubai and Belgium offer temporary relief, revenues are expected to decline by 15 to 20 percent in FY2026.
Seafood: Over one-third of India’s seafood exports are directed to the US, primarily shrimps. Competing nations such as Ecuador and Indonesia, facing far lower tariffs, are set to gain market share. Indian exporters anticipate margin erosion of 2 to 3 percent in the near term.
Footwear and Leather Products: The US constitutes over 20 percent of India’s exports in this segment. However, given India’s low share in US imports (<2 percent), the steep tariff significantly threatens business prospects, despite positives from the recently signed India-UK FTA.
Despite these headwinds ICRA has revised India’s GDP growth projection for FY2026 upward to 6.5 percent from 6 percent, supported by the GST rationalisation measures that are expected to soften the tariff shock. High tariff burden is likely to weigh on sectoral profitability and demand across several industries, with near-term resilience hinging on proactive mitigation strategies, geographic diversification and government support, it adds.
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