Trump Tariff Shock May Hurt India Briefly, Says CEA V Anantha Nageswaran

Friday, September 5, 2025 — India’s Chief Economic Adviser V Anantha Nageswaran said the new US tariff move by President Donald Trump will weigh on India in the near term. But he expects the impact to be shortlived. He said India’s economy has buffers. He pointed to strong domestic demand. He also cited export diversification and policy support.

What The CEA Said

The CEA called the tariff step a “blow.” He said it will test exporters for a few months. He expects adjustment costs. He flagged logistics changes and price renegotiations. He said currency moves can cushion some of the shock. He also said supply chains can reroute.

His core message is clear. This is a headwind, not a halt. He said India’s medium-term growth story remains intact. He expects firms to adapt quickly. He said trade links with other regions will help.

What These Tariffs Mean In Simple Terms

Tariffs are extra taxes on imports. US buyers will pay more for foreign goods. Some orders may get delayed. Some may be canceled. Importers may ask for discounts. Exporters may face thinner margins.

The first hit is on price-sensitive goods. The next hit is on items with tight delivery timelines. Over time, suppliers and buyers adjust. They change mix. They change routes. They look for tariff-friendly options.

The Near-Term Hit For India

India sells many goods and services to the US. The US is one of India’s top markets. So any broad tariff hike will pinch. The first 3–6 months are key. Firms will assess contracts. They will talk to US buyers. They will tweak product lines.

Likely pressure points:

Apparel and textiles face thin margins. Price hikes are hard.
Leather and footwear are price sensitive.
Engineering goods may see renegotiations.
Chemicals and plastics can face substitution.
Steel and aluminum are often tariff targets globally.
IT hardware and electronics can face higher landed costs if covered.

Services face a different channel. If US growth slows due to higher costs, IT budgets may get delayed. Consulting and design work can shift timelines. But many services contracts are sticky. They may hold up better than goods.

Why The CEA Thinks The Impact Will Be Shortlived

There are four big cushions.

Domestic demand is strong. Consumption and investment remain steady. This supports GDP even if exports wobble.
Export diversification helps. India ships more to the Middle East, Europe, ASEAN, and Africa now. This spreads risk.
Firms adapt fast. They rework specs. They change parts. They use tariff classifications better. They ship via partners when lawful.
Policy support is active. The government can ease credit. It can speed GST refunds. It can cut duties on inputs. It can help with trade finance.

Another reason is US buyer behavior. US importers do not switch overnight. They value reliability. If the tariff is broad-based, every foreign supplier faces it. That limits loss of share for Indian firms.

Currency And Inflation Effects

A modest rupee depreciation can absorb part of the tariff shock. Exporters earn more in rupees if the dollar is stronger. The Reserve Bank of India may allow two-way moves. It can smooth excess volatility.

Imported inflation is a risk if global partners respond. For India, the pass-through looks limited for now. Oil prices matter more for CPI. Food prices matter even more. The tariff channel is a smaller driver for inflation in the near term.

Sector View: Who Feels It First, Who Adapts Faster

Likely near-term pressure:

Textiles and apparel: High competition. Low pricing power.
Leather goods and footwear: Price sensitive retail buyers.
Base metals and products: Often get targeted in tariff cycles.
Generic chemicals: Buyers have many options.

Better placed:

Pharmaceuticals (formulations): Quality and compliance are key. Demand is steady. Margins allow some buffer.
IT services: Contracts and long relationships help. But watch discretionary spends.
Auto components: Deep supply ties support stickiness. Still, price talks may be tough.
Specialty chemicals: Custom products are harder to switch.

Supply Chain And Compliance Adjustments

Companies can do quick fixes.

Split shipments to manage tariff thresholds if rules allow.
Shift final assembly to tariff-neutral locations when feasible.
Reclassify correctly under HS codes with expert advice.
Negotiate shared burden clauses in contracts.
Use bonded warehouses to time entries better.

Compliance must stay clean. Aggressive routing without substance can backfire. Documentation should be tight. Rules of origin must be respected.

Government Levers On The Table

New Delhi has options that do not break the bank.

Faster GST refunds to ease cash flow.
Extend or tweak export credit lines and interest equalization.
Reduce import duties on key inputs to protect margins.
Speed up trade facilitation at ports and airports.
Expand export promotion through buyer-seller meets.

On the diplomatic side:

Seek product-level exclusions where possible.
Push mutual recognition and standards cooperation.
Use bilateral channels to protect critical supply lines, like pharma.

Market And Investor Lens

Equity markets may price a temporary earnings drag. Export-heavy small caps feel it first. Large caps with multi-market exposure are safer. The rupee may be a pressure valve. Bond yields may be steady if inflation risks stay contained.

Investors will watch guidance in the next earnings season. Order books, margin commentary, and currency hedges will matter. Firms that show adaptation plans may be rewarded.

What Businesses Should Do Now

Audit US exposure by product, customer, and contract terms.
Talk to buyers early. Share price and delivery options.
Lock currency hedges for near-term receivables.
Rework SKUs for tariff-friendlier specs if rules allow.
Diversify markets. Push the Middle East, Africa, and ASEAN pipelines.
Optimize working capital. Seek invoice discounting and ECGC cover.
Tighten compliance on HS codes and origin rules.

MSMEs should tap export credit insurance. They should use cluster facilitation cells. They should lean on EPCs for quick intel.

Data To Watch In The Next 3–6 Months

India’s monthly exports to the US by sector
Average realization and margin trends in earnings
Port dwell time and logistics costs
US retail inventory levels for apparel, electronics, and home goods
US manufacturing and services PMIs
Rupee-dollar range and RBI reserve changes
Indian credit growth to export sectors

These data points will show if the shock is fading. They will also show who is gaining share.

Risks That Could Prolong The Pain

A wider tariff spiral if other nations retaliate
A sharp US growth slowdown cutting demand
Tighter global financial conditions that raise trade finance costs
New non-tariff barriers like standards or certifications
Commodity spikes that hit input prices at the same time

Any two of the above together would extend the adjustment period.

Reasons For Optimism

India’s export mix is upgrading. More value-add each year.
Global buyers want China+1 and India+1. This supports orders.
PLI and supply-side reforms are boosting capacity.
Logistics is improving with new ports, DFCs, and highway links.
Digital trade tools reduce friction and speed compliance.

These factors help India hold share even in a tariff storm.

What The CEA’s Comment Signals To Markets

The CEA is preparing stakeholders for a bump, not a break. He is signaling policy support without overpromising. He is backing the rupee’s role as a shock absorber. He is betting on corporate agility. He expects the tariff episode to pass as supply chains adapt and as talks progress.

What To Watch Next

Any product-specific US exemptions or carve-outs
India’s steps on input duty cuts or credit support
Export order flows in textiles, chemicals, and engineering goods
Management commentary from top IT and pharma firms on US demand
Rupee trend and RBI’s stance on volatility
Signals from US retailers on holiday season buying plans
Bilateral trade engagement updates from New Delhi and Washington