CRISIL: MSMEs in Textiles, Diamonds, Chemicals to be Most Hit by US Tariffs
Surat’s diamond polishers set to bear the brunt, Tirupur’s readymade garment makers.
US Tariff Hike and Its Overall Impact
The imposition of higher tariffs by the US will significantly impact micro, small and medium enterprises (MSMEs), which account for as much as ~45% of India’s total exports.
Tariff Increase Details
Currently, the US levies an ad valorem duty of 25% on Indian goods. However, it has imposed an additional 25% tariff that will take effect from August 27, bringing the total tariff on Indian products to a substantial 50%. The additional ad valorem, if implemented, will have meaningful impact on certain sectors and remains monitorable.
Key Sectors Affected
The textiles, gems and jewellery and seafood industries, which account for ~25% of India’s total exports to the US, are likely to be the most affected. MSMEs have more than 70% share in these sectors and will be hit hard. Another sector likely to face the heat is chemicals, where MSMEs have a 40% share.
Impact on Readymade Garments (RMG)
Says Pushan Sharma, Director, Crisil Intelligence, “Partial absorption of the increased product prices due to higher tariffs will put pressure on MSMEs, squeeze their already-slim margins and pose a material challenge to their competitiveness. For instance, those into readymade garments (RMG) are expected to lose ground in the US as the tariff increases to 61%, including 50% additional ad valorem duty, compared with peers in Bangladesh and Vietnam tariffed at 31%. The Tirupur cluster, which accounts for over 30% of India’s RMG exports, will be severely impacted as ~30% of its exports are to the US.”
Impact on Gems and Jewellery
Similarly, in the gems and jewellery sector, MSMEs in Surat, which dominates diamond exports with over 80% share, will feel the tariff shock. As such, diamonds account for over half of the country’s gems and jewellery exports, and the US is a major consumer of Indian diamonds, comprising nearly a third of exports.
Impact on Seafood Exports
Seafood MSMEs will be disadvantaged following the imposition of a 50% tariff as they face severe competition from Ecuador, which is geographically closer to the US and has been levied a much lower tariff of 15%.
Impact on Chemicals
In chemicals, too, India faces stiff competition from Japan and South Korea, which have lower tariffs.
Impact on Auto Components
In auto components, the impact is expected to be marginally unfavourable as the US accounts for only 3.5% of India’s total production. MSME suppliers, which provide components to larger players that export to the US, will be impacted. The impact will be particularly pronounced for MSMEs supplying components for gearbox and transmission equipment, which account for a fourth of India’s auto component exports and have a significant US exposure of ~40%.
Timing of Tariff Hikes and Sector Challenges
To be sure, the tariff hikes come at a particularly challenging time for most of these sectors. For instance, RMG exports have recovered after declining 7% on-year in fiscal 2024 and logged 13% on-year growth in fiscal 2025, albeit on a low base. The gems and jewellery sector has seen exports decline 10%-a-year over the past two fiscals on compound annual growth rate basis.
Sectors Unaffected by Tariffs
Some sectors, however, remain unscathed for now. For instance, pharmaceutical products, which comprise 12% share in exports to the US, are currently exempt from tariffs.
Negligible Impact on Steel
In steel, the US tariffs are expected to have a negligible impact on MSMEs as these are engaged mainly in the re-rolling, producing long products, whereas the US primarily imports flat products from India. Also, the US accounts for only 1% of India’s steel exports.
Export Value at Risk
In the textiles, chemicals, seafood and auto components sectors, the US tariffs will affect $19 billion worth of exports, a part of which stands at risk. However, given that the domestic market for these sectors is expected to grow by $10 billion, the impact is expected to be mitigated to some extent.
Gems and Jewellery Exposure
Of the five sectors expected to see meaningful impact, gems and jewellery has the highest exposure to the US at ~$10 billion. While we expect export volumes to contract, the impact may not be fully reflected in revenue terms because of a likely runup in gold prices and sustained domestic demand.
Strategic Response: Diversifying Markets
To further mitigate the impact, India can increase exports to other countries as well as leverage the benefits of the recently concluded trade deal with the UK and a potential deal with the European Union.
Role of the India-UK Free Trade Agreement
Says Elizabeth Master, Associate Director, Crisil Intelligence, “The India-UK free trade agreement is supportive for MSMEs in export-oriented sectors such as textiles, gems and jewellery, seafood, leather and pharmaceuticals. Although these account for less than 3% of imports to the UK, except RMG (6%), the deal would improve MSME competitiveness versus Bangladesh, Cambodia and Turkey, and lend an edge over China and Vietnam in RMG.”
About Crisil Intelligence (formerly Market Intelligence & Analytics)
Crisil Intelligence is a leading provider of research, consulting, risk solutions and advanced data analytics, serving clients across government, private and public enterprises. We leverage our expertise in data-driven insights and strong benchmarking capabilities to help clients navigate complex external ecosystems, identify opportunities and mitigate risks. By combining cutting-edge analytics, machine learning and AI capabilities with deep industry knowledge, we empower our clients to make informed decisions, drive business growth and build resilient capacities.
For more information, visit Intelligence.Crisil.com
About Crisil
Crisil is a global, insights-driven analytics company. Our extraordinary domain expertise and analytical rigour help clients make mission-critical decisions with confidence.
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