India Faces 33.6% Effective Tariff Rate From US Despite 50% Headline Levy

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The United States has raised tariffs on Indian goods after President Donald Trump announced an additional 25% tariff on imports from India for continuing oil purchases from Russia. This has pushed the headline tariff rate to 50%. However, research by Nomura shows that India’s effective tariff rate stands at 33.6% because several key sectors are exempted from the new duties.

Which Indian Sectors Face Tariffs?

According to the report, about 60% of US imports from India now face the full 50% tariff. But important industries such as:

Semiconductors and electronics
Pharmaceuticals
Lumber and energy products
Bullion

are fully exempted under the ongoing Section 232 investigation. Finished automobiles face a lighter duty of 25%.

Impact on Indian Exports and GDP

India currently exports around $87 billion worth of goods to the US. With the new tariff regime, India’s effective trade cost has gone up, making its goods less competitive compared to other Asian exporters like Vietnam and Indonesia. While China faces a higher effective tariff of 42%, India’s new rate still puts pressure on its labour-intensive sectors such as textiles, food processing, and gems & jewellery.

Economists at HSBC have warned that if these duties stay in place for a year, India’s GDP growth could fall by 0.7 percentage points. Nomura has already cut India’s growth outlook to 6.0% for FY25 from its earlier 6.2%. The government is expected to bring in export support measures, though their cost could remain under 0.1% of GDP.

Possible RBI Action

With growth under threat, the Reserve Bank of India (RBI) may step in with rate cuts. Analysts expect 25 basis points cuts in October and December 2025, bringing the policy rate to 5.0% by year-end. The RBI has also assured that it will support exporters and vulnerable sectors if risks worsen.

Impact on Indian Banks and Markets

The sudden spike in tariffs has put pressure on India’s banking and stock market. The Nifty Bank index has dropped by 2,000 points across four sessions, with a 650-point fall in the latest trading session. The RBI has asked banks to carry out stress assessments for sectors that rely heavily on US exports.

Data shows Indian banks have exposure of:

Rs 2.77 lakh crore to textiles
Rs 2.71 lakh crore to chemicals
Rs 2.23 lakh crore to food processing
Rs 88,818 crore to gems and jewellery

So far, banks report no immediate threat due to diversified loan exposure. An earlier RBI survey in May 2025 showed that 75% of banks expected only a moderate impact on overall stability, though 40% anticipated a rise in NPAs in tariff-hit sectors.

RBI Governor Sanjay Malhotra has said the central bank is ready to step in with liquidity and support measures if needed.

Conclusion

The US tariff hike on India is a major trade setback, particularly for export-heavy and labour-intensive industries. While exemptions have cushioned some impact, exporters in textiles and jewellery face increased competition in global markets. With GDP growth forecasts lowered and banking stocks under pressure, India’s policymakers and the RBI are preparing measures to manage the fallout.