India’s Micro, Small and Medium Enterprises (MSMEs) are preparing for the impact of steep tariff hikes imposed by the United States, with analysts suggesting that new trade opportunities with the United Kingdom and European Union could help cushion the blow. According to a report by Crisil Intelligence, diversifying exports beyond the US market is key to sustaining MSME growth.
The US already levies a 25% tariff on Indian goods. Beginning August 27, an additional 25% duty will raise the total tariff burden to 50%. This sharp increase is expected to significantly affect sectors where MSMEs dominate, as they contribute around 45% of India’s total exports.
Sectors most vulnerable include textiles, gems and jewellery, and seafood, which together represent a quarter of India’s shipments to the US. MSMEs account for over 70% of activity in these industries. Chemicals, where small firms hold about 40% market share, will also feel the strain. In Surat, which leads India’s diamond trade with more than 80% of exports, businesses are bracing for a direct hit from the tariff escalation.
Elizabeth Master, Associate Director at Crisil Intelligence, noted that the India-UK Free Trade Agreement (FTA) could provide timely relief. The deal covers export-oriented sectors such as textiles, jewellery, seafood, leather, and pharmaceuticals. While these currently form less than 3% of UK imports, the pact is expected to improve India’s competitiveness against rivals like Bangladesh, Cambodia, Turkey, China, and Vietnam. Readymade garments, which already hold a 6% share in the UK import market, stand to gain a particular edge.
Pushan Sharma, Director at Crisil Intelligence, cautioned that MSMEs may have to partially absorb higher costs to remain competitive, further squeezing already-thin margins. This could erode profitability and pose long-term challenges to their viability in global markets.
Not all industries face the same risks. Pharmaceuticals, which account for 12% of exports to the US, remain exempt from additional duties. Similarly, the steel sector is relatively insulated, as the US primarily imports flat products, while Indian MSMEs are concentrated in re-rolling and long product segments. The US also represents just 1% of India’s overall steel exports.
With auto components, the effect is expected to be modest, since the US market contributes only 3.5% of India’s total production. Still, the broader tariff environment underscores the need for India to expand its export footprint and push forward with the UK FTA and a potential EU deal.
