Immediate Impact: Trump’s Tariff Bombshell Creates Market Turmoil
The Indian export sector faces its most significant challenge in recent years as US President Donald Trump announced a sweeping 25% tariff on all Indian goods, effective August 7, 2025. This unprecedented move, described by trade experts as “one of the toughest trade actions the US has taken against a key trading partner in recent years”, threatens to disrupt India’s $87 billion annual export relationship with its largest trading partner.
Unlike tariffs imposed on other nations, India has been denied all product-level exemptions, even for sectors like pharmaceuticals and electronics that typically receive preferential treatment.This blanket approach places Indian exporters at a severe disadvantage compared to competitors from Bangladesh, Vietnam, and other nations facing lower tariff rates of 15-20%.
Sectoral Impact Analysis:
The tariff structure creates particularly acute challenges for India’s key export sectors:
Early estimates suggest India’s goods exports to the US could decline by 30% from $86.5 billion in FY25 to $60.6 billion in FY26, representing a potential revenue loss of nearly $26 billion for Indian exporters.
Regulatory Modernization: India’s Policy Framework Gets Major Overhaul
Amid the tariff challenges, Indian policymakers have been actively modernizing the regulatory framework to enhance export competitiveness. The most significant development is the comprehensive update to India’s Foreign Trade Policy (FTP) framework.
Foreign Trade Policy 2025 Transformation:
The government has fundamentally restructured its approach with FTP 2025, moving from a rigid five-year cycle to a dynamic, continuously updated framework. Key changes include:
- Mandatory Stakeholder Consultation: New paragraphs 1.07A and 1.07B now require government consultation with exporters, importers, and trade experts before policy amendments
- Transparent Feedback Mechanism: DGFT must now provide clear reasons for accepting or rejecting stakeholder suggestions
- Four Strategic Pillars: Enhanced focus on incentive-to-remission schemes, ease of doing business, collaborative export promotion, and emerging sectors like e-commerce
RBI’s FEMA 2025: Streamlining Cross-Border Trade
The Reserve Bank of India released revised Draft Foreign Exchange Management (Export and Import of Goods and Services) Regulations 2025, introducing significant operational improvements:
- Unified Documentation: Single Export Declaration Form (EDF) replacing multiple submission requirements
- Extended Timelines: Export proceeds realization extended to 9 months with bank discretion for extensions
- Enhanced Bank Powers: Authorized Dealer banks can now approve write-offs up to 100% of export value and permit third-party payments
- Liberalized Trade Financing: Expanded provisions for merchanting trade and project exports
Export Incentive Schemes: Government Doubles Down on Support
Recognizing the challenging global environment, the Indian government has substantially enhanced its export support mechanisms.
RoDTEP Scheme Revival and Expansion:
The government allocated ₹18,233 crore ($2.13 billion) for the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme in FY26, restoring benefits for Special Economic Zones (SEZs), Export-Oriented Units (EOUs), and Advance Authorization holders from June 1, 2025. The scheme now covers:
- 10,780 HS lines for Domestic Tariff Area exports
- 10,795 HS lines for AA/EOU/SEZ exports
- Refund rates ranging from 0.3% to 4.3% of FOB value
Production Linked Incentive (PLI) Scheme Success:
The PLI scheme continues demonstrating strong results across 14 key sectors:
- Approved Applications: 764 across all sectors, including 176 MSMEs
- Actual Investment: ₹1.61 lakh crore ($18.72 billion) reported till November 2024
- Production Achievement: ₹14 lakh crore ($162.84 billion) in sales
- Export Performance: ₹5.31 lakh crore ($61.76 billion) in exports, with significant contributions from electronics, pharmaceuticals, and telecom sectors
Expanded Scope of Support Schemes:
The government has also enhanced other critical support mechanisms, including the Interest Equalization Scheme (IES) providing 3% interest subsidies for MSME exporters and 2% for large exporters in specific sectors.
Free Trade Agreement Momentum: India Accelerates Global Integration
Despite US tariff pressures, India has accelerated its free trade agreement (FTA) strategy, securing several landmark deals to diversify export markets.
Major FTA Achievements in 2025:
India-UK FTA (Finalized May 6, 2025): The most comprehensive trade agreement India has ever signed, eliminating tariffs on 99% of Indian exports and 90% of UK exports, with projected bilateral trade increase of £25.5 billion annually.
EFTA-TEPA Implementation: The Trade and Economic Partnership Agreement with European Free Trade Association countries (Iceland, Liechtenstein, Norway, Switzerland) comes into effect October 1, 2025, bringing a committed $100 billion investment over 15 years and creation of 1 million direct jobs.
Active Negotiations Pipeline:
Digital Trade Evolution: India’s Strategic Positioning
India’s digital trade policy has undergone significant evolution, particularly evident in the India-UK FTA’s comprehensive digital trade chapter. This represents a major shift from India’s traditionally cautious approach to digital commitments.
Key Digital Trade Developments:
- Cross-border Data Flow Provisions: Enhanced commitments compared to previous agreements with Singapore and UAE
- Source Code Protection: First-time agreement by India to protect businesses from forced technology transfer
- E-commerce Integration: Expanded provisions supporting India’s growing digital export sector
The digital trade chapter in the India-UK FTA is expected to set benchmarks for ongoing negotiations with the EU and US, potentially reshaping India’s approach to digital governance.
Supply Chain Resilience: Responding to Global Disruptions
Indian exporters are actively adapting to multiple supply chain challenges beyond US tariffs, including Red Sea shipping disruptions, China’s rare earth export restrictions, and general geopolitical uncertainties.
Key Adaptation Strategies:
Multimodal Transportation Adoption: Companies are diversifying logistics approaches, combining road, rail, sea, and air freight to ensure continuity during disruptions.
Market Diversification: Exporters are pivoting toward EU, ASEAN, and Middle East markets, with the India-UAE CEPA and other FTAs facilitating this shift.
Technology Integration: Enhanced adoption of AI and real-time data analytics for supply chain optimization and risk management.
Alternative Route Development: Exploration of new trade corridors, including the India-Middle East-Europe Economic Corridor and expanded use of inland waterways.
Sustainability and Green Trade: The Next Frontier
The global shift toward sustainability presents both challenges and opportunities for Indian exporters, particularly with the EU’s Carbon Border Adjustment Mechanism (CBAM) and increasing demand for environmentally friendly products.
Green Trade Opportunities:
India’s green exports grew by 47% in 2023, driven by demand in Europe, North America, and Southeast Asia. Key sectors showing promise include:
- Renewable Energy Equipment: India emerging as major exporter of solar modules and wind turbines
- Green Hydrogen: National mission targeting $10 billion in hydrogen-based product exports by 2030
- Organic Textiles: Leveraging position as world’s largest organic cotton producer
- Sustainable Manufacturing: Alignment with global ESG requirements through India’s Carbon Credits Trading Scheme
Compliance Requirements:
The EU’s CBAM implementation requires Indian exporters to provide precise “embodied emissions” data for carbon-intensive products. Early adopters who invest in renewable energy, optimize material use, and embed sustainability into processes can position themselves as premium, compliant exporters.
Strategic Recommendations for Indian Exporters
Immediate Actions (Next 6 Months):
- Diversify Market Exposure: Accelerate expansion into EU, ASEAN, and Middle East markets using existing FTAs
- Leverage Support Schemes: Maximize utilization of RoDTEP, PLI, and IES benefits to offset tariff impacts
- Supply Chain Restructuring: Implement multimodal logistics and identify alternative suppliers to reduce US market dependency
- Digital Readiness: Prepare for enhanced digital trade commitments in upcoming FTA negotiations
Medium-term Strategy (1-2 Years):
- Sustainability Integration: Invest in clean technology, renewable energy, and transparent emissions reporting to access premium markets
- Value Chain Positioning: Move toward higher value-added products and services to justify premium pricing
- Strategic Partnerships: Collaborate with international partners for technology transfer and market access
- Compliance Enhancement: Upgrade systems for seamless integration with new FEMA 2025 regulations and digital trade requirements
Long-term Vision (2025-2030):
- Green Transition Leadership: Position as global supplier of sustainable products and technologies
- Innovation Hub Development: Leverage PLI scheme benefits to build world-class manufacturing capabilities
- Digital Economy Integration: Capitalize on India’s digital strength to expand services exports globally
- Strategic Market Balance: Achieve optimal geographic distribution to reduce dependency on any single market
Conclusion: Navigating Transformation Through Strategic Adaptation
The current period represents a pivotal moment for Indian exporters, characterized by both significant challenges from US tariff policies and unprecedented opportunities from policy modernization, FTA expansion, and global sustainability trends. While the 25% US tariff creates immediate pressure, India’s comprehensive policy response—including enhanced export incentives, streamlined regulations, and accelerated FTA negotiations—provides a robust framework for adaptation.
The key to success lies in strategic diversification across markets, products, and supply chains, while leveraging government support schemes and embracing sustainability as a competitive advantage. Exporters who act decisively to implement these strategies will not only weather the current storm but emerge stronger and more competitive in the evolving global trade landscape.
The government’s commitment to continuous policy updates, stakeholder consultation, and export promotion, combined with India’s inherent strengths in technology, manufacturing, and services, positions the country well for achieving its ambitious $2 trillion export target by 2030. The current challenges, while significant, represent an opportunity for Indian exporters to build greater resilience and global competitiveness for the decades ahead.