India-US trade relations have taken a sudden and sharp turn for the worse, with the US imposing a 50% tariff rate on imports from India. In this post, Gulati, Rao and Suntwal highlight that the impact is heavily concentrated in labour-intensive sectors, which sustain millions of livelihoods. They recommend a multi-pronged strategic response: smart negotiations with the US, immediate and targeted relief to hard-hit sectors, diversification of export markets, and strong domestic reforms to restore competitiveness.

India-US trade negotiations have been ongoing for a few months now, and India’s approach was to be constructive and not combative. However, what began with promising momentum towards a US$500 billion trade goal is now stuck in tariff threats and political war. Things turned upside down when Trump slapped India with a total of 50% duty (effective from 27 August). These steps, referred to as secondary sanctions, were presented as action against Russia’s main energy partners, one of which is India.

These developments reflect a clear shift in the US approach, where tariffs, once aimed at balancing trade deficits and safeguarding domestic jobs, are now being deployed as a pressure tactic. India, with a trade deficit of US$45.7 billion vis-à-vis the US, faces higher tariffs than China (trade deficit value: US$295.4 billion, tariff rate: 30%), the European Union (US$235.6 billion, 15%), or Mexico (US$171.8 billion, 0% under the United States-Mexico-Canada Agreement). The Ministry of External Affairs of India has rightly called these actions unfair, unjustified, and unreasonable. India’s oil imports from Russia are within international rules and follow the global price cap system¹, helping keep oil prices stable worldwide. At the same time, in 2024, Europe imported US$41.6 billion worth of goods from Russia, with the figure being US$3.2 billion for the US and US$129.07 billion for China, compared to US$64.2 billion for India.

India’s import of crude oil from Russia

As per the Directorate General of Foreign Trade (DGFT), India’s crude oil imports (HSN 2709)² stood at US$143.08 billion in FY2024-25, with Russia accounting for 35% of this share. The key debate centres around how much India truly gains from sourcing Russian crude at discounted rates under the US$60/barrel price cap, compared to world market prices. In 2024, India (US$52.2 billion) and China (US$62.3 billion) emerged as the largest buyers of Russian oil, together accounting for the major share of Russia’s total crude exports of US$122.5 billion (as per the International Trade Centre Trademap). For India, discounted Russian supplies reduced the oil import bill by an estimated US$7-10 billion in 2024. Although the discount margin has now narrowed to about US$2.2/barrel, Russian crude remains a cheaper option.

While the narrative often highlights India’s ‘savings’ from Russian oil, Peter Navvaro argues that the primary financial beneficiaries of these imports are large corporates, not small enterprises or consumers. Although on the face of it, it looks like big oil refiners such as the Oil and Natural Gas Corporation (ONGC) (21%), Reliance Industries Ltd. (19%), and Hindustan Petroleum Corporation Limited (HPCL) (18%) capture the bulk of these gains, the majority of these (including ONGC and HPCL) are public sector units. These benefits help keep domestic fuel prices stable, shielding households and small businesses from global volatility (Figure 1).

Yet, these savings come with hidden trade-offs. By prioritising cheap energy imports (as part of its strategic autonomy), India now faces the threat of secondary sanctions from the US, which could endanger nearly US$60 billion worth of exports, particularly in labour-intensive sectors – such as textiles and apparel, footwear, gems and jewellery, and agriculture – that sustain millions of jobs.

Figure 1. Imports of Russian oil by Indian Companies, FY24-25

Source: S&P Panjiva, 2024-25.

Moreover, India’s oil purchases cannot be seen in isolation from its broader geopolitical-economic reality. As the world’s third-largest consumer of oil, India must secure energy at cost-effective prices to sustain growth. The question then arises: What would happen to the global crude oil market (valued at US$1.08 trillion in 2024) if India and China, the two largest buyers, stopped importing from Russia, the world’s top crude exporter? Neither the US nor any other producer has the spare capacity to meet this demand at the same prices that Russia offers. A sudden withdrawal could sharply disrupt supply dynamics, pushing crude oil to US$100-150/barrel, depending on market elasticity, imposing heavy costs not just on India but on the global economy at large. Besides, it is noteworthy that China has been importing large volumes of crude from Russia (far higher quantities than India) and yet has not faced such punitive tariff actions so far.

India’s trade with the US

The US is both the world’s largest importer and a major exporter and has significant influence over global trade flows. Now, US$60.85 billion (70% of India’s goods exports to the US) is exposed to the new 50% tariff (Figure 2). While this equals just 1.56% of the country’s GDP (gross domestic product) and 7.38% of total exports, the blow is concentrated in labour-intensive, high-value sectors like textiles and apparel, gems and jewellery, auto parts and agricultural products (especially shrimp), all of which directly impact millions of jobs and farmer livelihoods. These sectors already face steep competitive disadvantages: textiles and apparel with competitors in Bangladesh (which faces a tariff of 20%), Pakistan (19%), and Vietnam (20%); shrimp against Ecuador, Indonesia, and Vietnam; and gems and jewellery with Turkey (15%), Thailand (19%).

The rational approach lies in weighing two possible scenarios. One option is for India to diversify its crude oil imports by sourcing a portion, say around US$20 billion worth, from the US (which could expand to defence equipment and semiconductor chips that India cannot produce on its own). This could help balance the trade deficit, which is Trump’s main objective. The other possibility – where India doesn’t make adjustments taking US interests into account – is less accommodating and could involve retaliatory measures from the US in the form of higher import duties on essential and high-value commodities, particularly pharmaceutical products, where India holds a strong export position. In this context, rationality is in understanding that this is a temporary phase in ‘Trumpian Economics’, which he will give up when the US inflation flares up. In fact, notable US economists say this policy direction by Trump is flawed and US citizens will have to bear the brunt of it. To quote Fareed Zakaria, “If the tariffs hold, this may be the biggest strategic mistake of the Trump presidency so far. The damage is done, there is a need for India to hedge their bets by deepening the ties with Russia and China.”

Figure 2. Sectoral share of India’s goods exported to US, FY24-25

Source: DGFT, 2024.

What can India do?

The US has hurt global trust by placing short-term transactional gains over long-term global trust. Trump’s tariff shock is not just about trade; it is about sovereignty, which is non-negotiable and a fundamental right in any democracy. India must stand firm but act smart. The best-case scenario for India would be to negotiate and find solutions amicably.

First, India must engage in smart negotiations rather than emotional ones. The US remains too important a market to ignore, and India must work to re-engage the US with smart, tactical negotiations. Focus should be placed on energy, defence equipment (including drones), and advanced semiconductor chips that India does not yet produce domestically. Such an approach would allow the US to reduce its trade deficit.

Agriculture has always been a sticking point, particularly on genetically modified (GM) crops. India restricts imports of soybean and corn from the US on GM grounds, yet it is ironic that GM cotton and its derivatives are already in the food chain; 95% of India’s cotton is GM, and cottonseed oil and de-oiled cake are widely consumed. A more pragmatic approach would be to allow imported GM corn for ethanol blending or as poultry feed, and GM soya for oil extraction and feed use. US demands over GM products should be addressed based on science. India could also adopt a Tariff Rate Quota (TRQ)³ mechanism in sensitive items such as cotton, soya, and dairy. On dairy, a certification system (similar to halal) could be introduced to assure consumers that cattle are non-meat-fed or pasture-grazed, thereby addressing sensitivities while facilitating trade.

India must also rethink its tariff structure. In 2024, the average agricultural tariff was 36.7% – nearly seven times the US average of 5%. Yet, some imports like US$17.09 billion worth of edible oils (57% of consumption) enter at under 30% duty, while others face huge tariffs – walnuts (120%), chicken legs (100%), rice (70%, despite India being the largest exporter), skimmed milk powder (60%), corn and apples (50%), soybean (45%) etc. India must bring down tariffs on all agricultural commodities to below 50%.

Secondly, if US still bullies India with tariffs, then there is a need to identify the sectors that will suffer significantly. This can be the basis for providing targeted relief through temporary interest-free loans, capital incentives, taxation waivers, GST (goods and services tax) rate cuts, and compensation for freight subsidy. These measures should be rolled out within weeks for sectors such as textiles and apparel, gems and jewellery, and shrimp. The textile and apparel sector, facing a 50% tariff versus 19-20% for competitors, needs temporary 25-30% incentives (mentioned above) to offset the gap and protect both export earnings and the jobs of over 45 million workers. Similar support ought to be provided to the gems and jewellery sector, anchored in Surat; and shrimp exports majorly across Andhra, West Bengal, and Odisha.

Thirdly, India should focus on diversifying exports and reducing its dependence on the US. This can be done by fast-tracking free trade agreements with the EU, deepening the agreement with the UK, exploring joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership) trade bloc, and deepening trade with Africa, ASEAN (Association of Southeast Asian Nations), Middle East, and Brazil. BRICS⁴ nations should work together to restore the global trade order, and India can take a proactive role. However, this will be a possibility only in the medium term.

Lastly, this is a moment for India to reset its trade strategy, much like the 1991 reforms turned adversity into opportunity. The foundation must be strong domestic reforms aimed at restoring competitiveness irrespective of Trump’s tariff pressures. Domestic reforms have been overdue. Today, the ease of doing business in India is hugely obstructed by excessive bureaucratic control, with inefficiency and lack of accountability as the real bottlenecks. The solution lies in making the bureaucracy directly accountable for results and outcomes. To address this, domain experts need to be brought into the system to drive evidence-based, forward-looking reforms, including in trade policy. Within agriculture, tariffs on all agricultural commodities should be brought down to below 50%, irrespective of Trump’s policies; and TRQ should be adopted, keeping prohibitive tariffs only beyond a certain volume threshold. India should focus on innovations, supply chain efficiency, infrastructure modernisation, high productivity, and research and development, in order to enhance our export competitive strength globally.

India has faced worse before. After the 1998 Pokhran nuclear tests, sanctions tried to isolate us, but we came out of it. Trump’s tariffs are another test. India is a rising power whose time has come. With smart strategy, resilience and reforms, we will not just survive this challenge, we will emerge stronger. This should also serve as a wake-up call for bold reforms, on the scale of those implemented in 1991 but executed with urgency, where India undertakes its biggest set of structural changes to become more competitive and future-ready.

This blog is adapted from ICRIER’s published policy brief, “Navigating Trump’s Tariff Blow”.

The views expressed in this post are solely those of the authors and do not necessarily reflect those of the I4I Editorial Board. 

Notes:

1. The G7 and EU have imposed a US$ 60/barrel price cap on Russian oil, restricting western insurers and shippers from handling higher-priced exports. This ensures Russian oil continues to flow globally but at reduced revenue, curbing its war funding capacity. 
2. Under the Harmonised System of Nomenclature (HSN) for standardised classification of traded goods, HSN 2709 refers to “Petroleum oils and oils obtained from bituminous minerals, crude .
3. Tariff Rate Quota is a trade policy tool that allows a specified quantity of imports at a lower tariff rate, while quantities above this limit attract a higher tariff.
4. BRICS is an alliance of emerging economies, including Brazil, Russia, India, China, and South Africa, as well as five new members – Egypt, Ethiopia, Indonesia, Iran, and the United Arab Emirates.