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The global trade system is undergoing a significant transformation. The U.S. President has sent formal letters to more than 20 countries alerting them of the tariff rates applicable as of August 1, 2025. While nations like China, Mexico, Canada, Bangladesh, and Vietnam are preparing for higher tariffs on their exports to the U.S, one country has so far remained off the list- India. In the absence of a tariff notification from the U.S, India finds itself in an advantageous position that could give Indian exporters a significant competitive edge, particularly in key sectors such as pharmaceuticals, textiles, electronics, and seafood, thereby making Indian goods relatively cheaper and more attractive in the US market. The U.S. remains a crucial destination for many of India’s high-value and labour-intensive exports. Between 2022- 2024, India’s exports to the U.S. were primarily dominated by high-value sectors, including electrical machinery (HS 85), pharmaceuticals (HS 30), precious stones and metals (HS 71), and mechanical appliances (HS 84). Collectively, these sectors accounted for 43.5% of India’s total exports to the U.S.
India and the U.S are reportedly close to finalizing a trade agreement, with the shared objective of reaching USD 500 billion in bilateral trade by 2030.[1] This offers a strategic opportunity for India to boost its exports. However, until the trade agreement is announced, the tariff on India continues at 26%, with a 10% baseline duty and 16% additional duty. An analysis by NITI Aayog in its Trade Watch October-December (Q3) FY25 [2] reveals that, in 6 of the top 30 categories, India faces slightly higher average tariffs, up to 3%, than other leading exporters, with the majority of them marginally higher between 0-2%. These specific product categories constitute over 12% of total U.S. imports, highlighting the significant opportunity available for Indian exporters. Moreover, the tariff differences are relatively minor, offering India a strategic opportunity to engage in targeted trade negotiations with the U.S. An examination of tariff data by NITI Aayog also reveals that at the HS 4-digit level across the top 100 products shows that in 80 products, the competing countries are subject to higher tariffs than India. Even in instances where India faces higher tariffs, the differences are generally less than 1% in products that account for 24.5% of India’s exports to the U.S. Thus, the NITI Aayog’s analysis indicate that India enjoys a competitive edge over China in various key sectors, and even though the average tariff differential between the Indian and Chinese exports is 20.5%, it is still in favour of India.
In order to boost India’s export regime, the NITI Aayog has recommended strategic policy measures for expanding production-linked incentive (PLI) schemes to more labour-intensive sectors, which include leather, footwear, furniture, and handicrafts, and rationalising industrial electricity tariffs by cutting cross-subsidies and increasing the use of renewable energy.[3] The recommendations also include the launch of targeted schemes under the Export Promotion Mission, with flexible incentives and a more streamlined RoDTEP (Remission of Duties and Taxes on Exported Products) framework to enhance the competitiveness of SMEs.[4] Additionally, simplifying export bill compliance for small exporters through reduced bank fees, simplified documentation for shipments below $1,000, and easing penalties can further help lower transaction costs for MSMEs that have limited export volumes but maintain strong compliance records. Another key recommendation is to expedite the release of Jan Vishwas 2.0 to further improve the legal framework by reducing litigation time and costs, while introducing civil penalties and administrative measures for minor lapses to enhance regulatory efficiency.
Further, the exports of shrimps from India account for over 40% of the US shrimp imports, and honey, although a smaller export item for India, constitutes around 25% of US imports. India is also a key supplier of generic pharmaceuticals, and this sector could face significant growth if the Bilateral Trade Agreement between India and the U.S eliminates or reduces both tariffs and non-tariff barriers (NTBs). Non-tariff barriers (NTBs) are a critical area in trade negotiations, and a recent analysis suggests that the removal of NTBs in sectors such as generic pharmaceuticals, Ayush products, and processed organic food could add $1–2 billion in Indian exports to the U.S.[5]
The U.S and Indonesia have also signed a new trade deal on July 15, 2025, imposing a 19% tariff on goods from Jakarta, while U.S. exports to Indonesia are to be tariff and non-tariff-barrier free. The U.S. President has also announced that the negotiators from India and the U.S are working towards finalising a deal before the August 1 deadline, which will be along the same lines as the U.S.-Indonesia trade deal.
The Federation of Indian Export Organisations (FIEO) is also actively working to maximize this opportunity. It has shortlisted a total of 408 strategically stable and commercially significant products, accounting for more than two-thirds of India’s total exports to the U.S., and has identified over 300 high-potential export items to the U.S.[6] The FIEO is urging the government to seek tariff reductions for products across various sectors such as pharmaceuticals, smartphones, diamonds, textiles, shrimps, etc., highlighting the diversity of India’s export regime.
Analysis:
The evolving tariff and trade landscape presents both opportunities as well as challenges for Indian exporters. India’s exclusion from Trump’s tariff list is not an oversight but a deliberate sign of diplomatic progress and an opportunity to improve India’s export margins. However, the tariff threats by the U.S could be viewed as a strategy to expedite the ongoing trade negotiations with India and provide India with an opportunity to safeguard its economic interests and enhance the bilateral trade relations.
While production-linked incentives (PLI) have proven effective in sectors such as electronics and pharmaceuticals, extending them to more labour-intensive sectors could boost production and strengthen India’s export capacity. Additionally, by cutting cross-subsidies and increasing the use of renewable energy, India could lower manufacturing costs, which will help in improving India’s export margins. Further, with FIEO’s list of high-potential items for exports to the U.S. and by addressing both tariff and non-tariff barriers, India could emerge as a strong trade partner.
Therefore, the growing trade negotiations between India and the U.S. present a strong foundation for India to boost its exports and open up new opportunities for exporters, particularly the SMEs and MSMEs. Even in the presence of minor tariff differentials, India still enjoys a favourable position, as compared to other nations. Thus, a successful Bilateral Trade Agreement between the two nations is very crucial, as such a treaty would not only aid in resolving the tariff issues but also mark a pivotal step in enhancing India’s trade relationship with the U.S.
[1] Press Information Bureau, “India-U.S. Trade Talks in New Delhi Concludes”, March 29, 2025.
[2] NITI Aayog, Government of India, “Trade Watch Quarterly”, October-December (Q3) FY25, July 2025.
[3] NITI Aayog, Government of India, “Trade Watch Quarterly”, October-December (Q3) FY25, July 2025.
[4] ibid
[5] The Economic Times, “India’s exports still have room to grow even if Trump walks the talk for 10% additional tariff”, ET Online, July 14, 2025.
[6] The Economic Times, “Shrimps to smartphones & diamond: FIEO identifies 300 top exports to push for US tariff cuts”, ET Online, July 14, 2025.
Authors:
Aditya Bhattarcharya, Partner
Akriti Sharma, Trainee Associate