MSMEs Under Strain After US Imposes Additional Tariff
The US’ additional tariffs are likely to hit the Indian MSME sector the hardest. Stakeholders are looking at incentives to protect their businesses.
Sindhu Bhattacharya
- Aug 28, 2025,
- Updated Aug 28, 2025 6:08 PM IST
The punitive additional 25% tariff imposed by US President Donald Trump on India will hurt a swathe of Indian businesses, with particularly devastating impact on small businesses. India’s merchandise exports to the US—India’s largest trading partner—were worth $87 billion last fiscal (FY25). Estimates suggest that about 70% of this trade is likely to be severely impacted due to the fresh tariffs, with only exports of pharmaceuticals, smartphones, and petroleum products exempt as of now. Exports to the US form a major share (greater than or equal to 5%) in India’s total export pie for more than 100 product categories.
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Small businesses will likely see a major impact, with sectors such as garments and textiles, gems & jewellery, leather and fisheries, already struggling to contain the damage.
In the Surat diamond hub, skilled workers engaged in cutting and polishing rough diamonds are struggling with falling incomes due to diminished demand. The latest tariff blow is expected to further worsen their earnings.
The Regional Chairman (Gujarat) of the Gems & Jewellery Export Promotion Council, Jayanti Savaliya, pointed out that artisans’ income could fall by as much as 35-40% due to the latest tariff. “The entire diamond supply structure has been disrupted due to the high tariffs and this will eventually hurt both, skilled and unskilled workers and their incomes,” Savaliya says.
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At the Tiruppur garment hub in Tamil Nadu, almost a third of the Rs 40,000 crore turnover comes from exports to the US. Raja Shanmugham, former president of the Tiruppur Exporters Association, said that of the 3,000 export units in the region, 95% were in the MSME category. “There is a 90-day cycle from getting an order to delivery. Due to the tariff issue, one entire cycle has been disrupted now, finished goods are lying in warehouses with buyers cancelling orders.”
On August 6, the US announced an extra 25% tariff on all Indian goods, in addition to the 25% tariff already in place, making it a total of 50% from August 27. This is on top of the usual US import duties, called Most Favoured Nation (MFN) tariffs. This decision makes India one of the most heavily taxed trading partners—worse off than China (30%) or Vietnam (20%)—but on par with Brazil.
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Ajay Srivastava, founder of the Global Trade Research Initiative (GTRI), gives the example of men’s shirts. Currently, the MFN tariff is 12%, but if the total 50% tariff is implemented, then the effective rate will become 62% for Indian shirt exports. “Our men’s shirt exports could be in a free fall if this situation persists,” Srivastava says.
Another small-scale sector likely to be severely impacted is shrimp exports. India exported $2 billion worth of shrimps to the US last fiscal, when the only applicable tariff was an anti-dumping duty of 10%. But now this will rise to 60%, making Indian exports utterly uncompetitive vis-a-vis Canada (which now has zero duties on shrimp exports due to the FTA) and Chile which is still at
10% tariff. The shrimp export industry is expected to take a major hit, unless the tariff rate is negotiated downwards.
Anil Bhardwaj, Secretary General of the Federation of India Micro, Small and Medium Enterprises, says, for the MSME sector, US is the biggest export market, and suggested incentivisation of large Indian trading houses to mitigate the tariff hit. He proposes incentives such as concessions in setting up large warehouses and in income tax rebates for the large trading houses. FISME has also asked for interest subvention of 2-3% for MSMEs to avail of cheaper working capital loans.
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“Right now, all pipeline orders are on hold,” said Ashish Gujarati, who supplies home textile fabrics to exporters from Surat. While finding other markets for exports is a long-term solution, Gujarati says the government needs to give an “order wise subsidy or directly subsidise 10-12% of the tariff increase” for easing the short-term pain of the small businesses. Businesses in Gujarat have also asked the state government to bring back the GST reimbursement scheme where the state share of GST is returned to the exporter.
The latest punitive tariffs could additionally have a direct impact on India’s GDP.
Analysts at CareEdge Ratings have estimated the direct impact to be 0.3-0.4% of GDP, while ICRA has trimmed the GDP forecast by 0.2%. But not all is gloom and doom. Analysts at CareEdge and at ICRA have pointed towards India’s low export dependence compared to some other economies. This should offer some comfort.
For now, small industries are holding out for negotiations with the US, hoping to emerge from the crisis unscathed.
The punitive additional 25% tariff imposed by US President Donald Trump on India will hurt a swathe of Indian businesses, with particularly devastating impact on small businesses. India’s merchandise exports to the US—India’s largest trading partner—were worth $87 billion last fiscal (FY25). Estimates suggest that about 70% of this trade is likely to be severely impacted due to the fresh tariffs, with only exports of pharmaceuticals, smartphones, and petroleum products exempt as of now. Exports to the US form a major share (greater than or equal to 5%) in India’s total export pie for more than 100 product categories.
Advertisement
Small businesses will likely see a major impact, with sectors such as garments and textiles, gems & jewellery, leather and fisheries, already struggling to contain the damage.
In the Surat diamond hub, skilled workers engaged in cutting and polishing rough diamonds are struggling with falling incomes due to diminished demand. The latest tariff blow is expected to further worsen their earnings.
The Regional Chairman (Gujarat) of the Gems & Jewellery Export Promotion Council, Jayanti Savaliya, pointed out that artisans’ income could fall by as much as 35-40% due to the latest tariff. “The entire diamond supply structure has been disrupted due to the high tariffs and this will eventually hurt both, skilled and unskilled workers and their incomes,” Savaliya says.
Advertisement
At the Tiruppur garment hub in Tamil Nadu, almost a third of the Rs 40,000 crore turnover comes from exports to the US. Raja Shanmugham, former president of the Tiruppur Exporters Association, said that of the 3,000 export units in the region, 95% were in the MSME category. “There is a 90-day cycle from getting an order to delivery. Due to the tariff issue, one entire cycle has been disrupted now, finished goods are lying in warehouses with buyers cancelling orders.”
On August 6, the US announced an extra 25% tariff on all Indian goods, in addition to the 25% tariff already in place, making it a total of 50% from August 27. This is on top of the usual US import duties, called Most Favoured Nation (MFN) tariffs. This decision makes India one of the most heavily taxed trading partners—worse off than China (30%) or Vietnam (20%)—but on par with Brazil.
Advertisement
Ajay Srivastava, founder of the Global Trade Research Initiative (GTRI), gives the example of men’s shirts. Currently, the MFN tariff is 12%, but if the total 50% tariff is implemented, then the effective rate will become 62% for Indian shirt exports. “Our men’s shirt exports could be in a free fall if this situation persists,” Srivastava says.
Another small-scale sector likely to be severely impacted is shrimp exports. India exported $2 billion worth of shrimps to the US last fiscal, when the only applicable tariff was an anti-dumping duty of 10%. But now this will rise to 60%, making Indian exports utterly uncompetitive vis-a-vis Canada (which now has zero duties on shrimp exports due to the FTA) and Chile which is still at
10% tariff. The shrimp export industry is expected to take a major hit, unless the tariff rate is negotiated downwards.
Anil Bhardwaj, Secretary General of the Federation of India Micro, Small and Medium Enterprises, says, for the MSME sector, US is the biggest export market, and suggested incentivisation of large Indian trading houses to mitigate the tariff hit. He proposes incentives such as concessions in setting up large warehouses and in income tax rebates for the large trading houses. FISME has also asked for interest subvention of 2-3% for MSMEs to avail of cheaper working capital loans.
Advertisement
“Right now, all pipeline orders are on hold,” said Ashish Gujarati, who supplies home textile fabrics to exporters from Surat. While finding other markets for exports is a long-term solution, Gujarati says the government needs to give an “order wise subsidy or directly subsidise 10-12% of the tariff increase” for easing the short-term pain of the small businesses. Businesses in Gujarat have also asked the state government to bring back the GST reimbursement scheme where the state share of GST is returned to the exporter.
The latest punitive tariffs could additionally have a direct impact on India’s GDP.
Analysts at CareEdge Ratings have estimated the direct impact to be 0.3-0.4% of GDP, while ICRA has trimmed the GDP forecast by 0.2%. But not all is gloom and doom. Analysts at CareEdge and at ICRA have pointed towards India’s low export dependence compared to some other economies. This should offer some comfort.
For now, small industries are holding out for negotiations with the US, hoping to emerge from the crisis unscathed.
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