US tariff impact: Diamonds, shrimps, textiles most vulnerable, says Crisil

Crisil says 50% US tariff on Indian imports will severely impact diamond polishing, shrimp, home textiles, and carpets, with other sectors facing manageable to moderate risk

Diamond polishing, shrimp, home textiles, and carpets are among the most vulnerable sectors to the adverse effects of the 50 per cent tariffs that the US plans to impose on Indian imports, Crisil said in a report. 

The US administration has imposed 25 per cent tariffs on Indian imports. Another 25 per cent levy on India’s shipments to the US — effective from August 27 — as a penalty for Russian crude oil purchases will take the cumulative additional tariff burden to 50 per cent. 

For other sectors such as ready-made garments, agrochemicals, specialty chemicals, and capital goods, the impact of the 25 per cent tariff is expected to be more manageable. These sectors have moderate exposure to the US market — 5 to 20 per cent of overall revenue — and face a limited tariff disadvantage, allowing them to pass on part of the additional cost to customers. 

 

However, the move to impose an additional 25 per cent tariff as a penalty for importing crude oil from Russia will make Indian exports to the US unviable for sectors such as diamond polishing, shrimp, home textiles, and carpets. Sectors, including ready-made garments, chemicals, agrochemicals, capital goods, and solar panel manufacturing that have sizable trade exposure to the US will also be impacted, it said. 

The 25 per cent reciprocal tariff that took effect on August 7 is already higher than that faced by most Asian competitors. Sectors such as diamond polishing, shrimp, and home textiles are likely to see sales volumes decline because of their heavy reliance on US trade, while costs could rise due to partial absorption of tariffs. This will weigh on their earnings, it said. 

The extent of the impact will depend on factors such as exposure to the US, the ability to pass on incremental costs, and the relative tariff disadvantage compared with competing nations. “A potential second-order impact, including a slowdown in US demand and disparate tariffs across countries that could alter global trade dynamics, also warrants close monitoring,” the report said. It said any potential trade agreement between India and the US in the coming days will be key to watch. 

However, strong corporate balance sheets, possible bilateral trade agreements with other countries, and potential support from the Indian government for affected sectors could help mitigate the credit impact to some extent. 

The US is India’s largest trade partner and export destination. In FY24, India exported goods worth $86.5 billion to the US, accounting for one-fifth of India’s merchandise exports.