Which Indian Exports Face the Brunt of 25% US Tariffs & Which Might Escape Largely Unhurt?

In a major development that has sent tremors through financial markets, the United States has imposed steep 25% tariffs and potential additional penalties, on Indian imports, marking a significant setback in the long-running trade talks between the two nations.

As per a report by Emkay Global Financial Services, this move has introduced substantial near-term volatility for Indian markets and could create ripple effects in capital flows, currency valuation, and the Reserve Bank of India’s (RBI) policy direction.

Tariff Shock Amid Stalled Talks and Geopolitical Undercurrents
The tariff decision, announced by President Donald Trump, comes amid growing strain over India’s reluctance to open up its agri and dairy sectors, long considered red lines by New Delhi. Emkay’s note emphasises that this trade saga is “far from over,” highlighting the geopolitical undertones behind the economic manoeuvres.

“Even as the US slaps India with 25%+ tariffs, the trade saga is far from over,” Emkay noted. “There is as much of a geopolitical angle to this as an economic one.”
According to the report, the breakdown in talks appears rooted in India’s refusal to concede market access for US agricultural and dairy goods, sectors politically sensitive due to domestic employment implications. However, a newer, more complex dimension has entered the fray: India’s ongoing energy and defence ties with Russia.

Energy and Defence Ties with Russia: The New Spoiler
While the agri-dairy impasse was predictable, the latest US action reportedly includes penalties tied to India’s continued crude oil and defence purchases from Russia—an issue that could muddy negotiations further. Russia’s share in India’s crude oil imports has surged from less than 1% in FY22 to nearly 36% in FY25, thanks to steep wartime discounts.

Yet these discounts have sharply eroded in recent months due to extended sanctions, making the shift away from Russian oil economically viable but geopolitically charged.
“Defence purchases are trickier,” Emkay added, highlighting that about 60% of India’s military hardware remains of Russian or Soviet origin, making a swift strategic pivot difficult despite increasing defence cooperation with the US.

Sectoral Fallout: Textiles, Auto Ancillaries, and Chemicals Most Exposed
Though India’s overall exports to the US amount to just 2% of GDP, the sectoral impact of the tariffs could be substantial. Emkay estimates India’s US exports could fall by $30–33 billion (about 0.8–0.9% of GDP) if the 25%+ tariff regime persists.

Among the most exposed industries are textiles, auto ancillaries, chemicals, and potentially oil marketing companies (OMCs) if Russian imports are further restricted.
Interestingly, sectors like pharma and electronics, which are typically vulnerable in global tariff disputes, have so far been exempt. “Pharma and Electronics have been exempt from any tariffs so far, while Auto is better placed than feared,” the report said, noting that India exports few vehicles to the US and could benefit from Washington’s shifting stance on China, Canada, and Mexico.

INR Under Pressure, RBI's Easing Path Constrained
The Indian rupee has already borne the brunt of the announcement, falling 1.9% in July, making it one of the worst-performing emerging market currencies (EMFX) this month. Emkay warns that the volatility in foreign exchange and capital markets will now feed into the RBI’s decision-making matrix, potentially limiting its ability to continue easing monetary policy despite favourable inflation trends.

“The FX (and rates) volatility is likely to feed into RBI’s reaction function, partly constraining further near-term easing at a time when inflation dynamics have turned highly favourable,” the report stated, citing an FY26 inflation projection of 2.8%.

Volatility in Foreign Flows Adds to Market Fragility
India has already seen net outflows of $1.4 billion in July, reflecting growing investor nervousness. Emkay cautions that continued “policy uncertainty and trade/tariff noises” could exacerbate market fragility, especially with already weak earnings momentum and lofty valuations in Indian equities.
“While we feel that a trade deal will be eventually negotiated, persisting trade/tariff noises and policy uncertainty are likely to keep volatility intact,” Emkay wrote.

Short-Term Sell-Off Likely, But Emkay Recommends Buying the Dip
Despite the gloomy near-term forecast, Emkay maintains a constructive long-term view on Indian equities. The firm believes the 25%+ tariff regime represents a worst-case scenario and anticipates that a final deal, if reached, may feature more moderate tariff rates.

Crucially, high-weightage sectors such as financials, technology, and consumption remain unaffected by the new tariff regime. Emkay thus sees any sharp correction as an opportunity.
“We believe the 25%+ regime is the worst-case scenario… A meaningful correction is an opportunity to buy the market with consumer discretionary and industrials as the key sectors,” the report advised.
 

Global Trade Reset Will Be Turbulent
Emkay also notes that India is relatively less exposed to exports compared to its EM Asia peers, which may cushion the overall macro blow. However, India is unlikely to be entirely decoupled from the cyclical downturn affecting emerging markets.

“India is less export-exposed vs EM Asia, though unlikely to be non-synced with EM Asia on the cyclical downturn,” the report cautioned.
The global trade reset, Emkay argues, will not be smooth. The US is pursuing a recalibration of its current account deficit primarily via demand destruction rather than structural reordering, posing downside risks to the broader rest of the world (RoW). For India and Asia, a disinflationary impulse could arise from falling global commodity prices and a glut in manufactured goods.

US Deal History Offers Little Comfort
The Emkay report also points out that even countries that have signed trade deals with the US such as the EU, UK, Japan, Indonesia, and Vietnam, continue to face elevated tariffs despite having made “sweeping concessions.”

“Notably, other key nations that have cracked trade deals with the US still face elevated tariffs and, in return, have given sweeping concessions,” the report said, implying that India may not gain much from a hasty agreement.

Looking Ahead: Hopes for a Mini Deal
Amid the geopolitical tug-of-war and economic pressures, Emkay expects that some kind of “mini deal” may be negotiated, particularly if India is willing to ramp up US LNG and crude oil imports as a strategic concession. However, clarity is still awaited on whether previously spared sectors like pharma, electronics, energy, and minerals will retain their exemptions under the new tariff regime.

“The deadlock seems to have emerged from India’s refusal to concede on opening up domestic agri and dairy – the main bone of contention,” Emkay explained. “We believe both sides are still likely to push for a deal soon.”

Fragile Now, Resilient Later
In summary, while the immediate fallout of the US tariffs presents clear downside risks, from rupee pressure and market volatility to capital outflows and sentiment hits, the long-term structural story for India remains intact. If India navigates this geopolitical and economic crossfire with tactical concessions and strategic recalibration, the current turbulence could ultimately strengthen its trade resilience and global positioning.

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