Indian exporters are bracing for a sharp decline in US orders after trade talks collapsed and Washington confirmed steep new tariffs on goods from the South Asian nation, escalating tension between the strategic partners.
Goods entering the United States will face an additional 25 per cent tariff from Wednesday, local time (1:31am AEST), taking some levies to 50 per cent.
US President Donald Trump announced the additional tariff in retaliation for New Delhi buying Russian oil, which has become a key funder of its war in Ukraine.
The two countries are yet to sign a new trade deal with the Trump administration.
"The government has no hope for any immediate relief or delay in US tariffs," a commerce ministry official told Reuters, who sought anonymity for lack of authorisation to speak to media.
Exporters hit by tariffs would receive financial assistance and be encouraged to diversify to alternative markets such as China, Latin America and the Middle East, the official added.
Exceptions are shipments in transit, humanitarian aid, and items under reciprocal trade programmes.
The Indian rupee fell to a three-week closing low of 87.68 against the dollar, despite recovering some ground after suspected central bank intervention to support it.
Wednesday's tariff move follows five rounds of failed talks, during which Indian officials had signalled optimism that tariffs could be capped at 15 per cent.
Officials on both sides blamed political misjudgement and missed signals for the breakdown in talks between the world's biggest and fifth-largest economies, whose two-way trade is worth more than $190 billion ($292 billion).
White House trade adviser Peter Navarro and US Treasury Secretary Scott Bessent have accused India of indirectly funding Russia's war against Ukraine by boosting Russian oil purchases.
This month Mr Bessent said India was profiteering from its sharply increased imports, making up 42 per cent of total oil purchases, versus less than 1 per cent before the war, in a shift Washington has called unacceptable.
The stand-off has raised questions about the broader relationship between India and the US, important security partners who share concerns about China.
However, on Tuesday, the US State Department and India's Ministry of External Affairs issued identical statements saying senior officials of the ministries and defence departments met virtually on Monday and expressed "eagerness to continue enhancing the breadth and depth of the bilateral relationship".
The statements said both sides looked forward to increasing defence cooperation and also discussed trade and investment, energy security, critical minerals exploration, and counter-narcotics and counterterrorism cooperation.
Both sides also reaffirmed their commitment to the Quad, a partnership that brings together the US and India with Australia and Japan.
It is supposed to meet at leader level later this year.
India has issued no directive yet on oil purchases from Russia. Companies will continue to buy oil based on economics, three refining sources said.
Indian exporters seek aid
Exporter groups estimate hikes could affect nearly 55 per cent of India's merchandise exports worth $87 billion to the US, while benefiting competitors such as Bangladesh, China and Vietnam.
"The US customers have already stopped new orders," said Pankaj Chadha, president of the Engineering Exports Promotion Council.
"With these additional tariffs, the exports could come down by 20 per cent to 30 per cent from September onward."
The government has promised financial aid such as greater subsidies on bank loans and support for diversification in the event of financial losses, Mr Chadha said.
"However, exporters see limited scope for diversifying to other markets or selling in the domestic market."
The commerce ministry official said the government had identified nearly 50 countries to which India could boost exports, particularly items such as textiles, food processed items, leather goods and marine products.
India's diamond industry exports have already hit a two-decade low on weak Chinese demand, and the higher tariffs now threaten to cut it off from its largest market, taking nearly a third of $US28.5-billion annual shipments of gems and jewellery.
Broader economic impact expected
Private sector analysts warn that a sustained 50 per cent tariff could weigh on India's economy and corporate profits, prompting the steepest earnings downgrades in Asia, even if proposed domestic tax cuts partly cushion the blow.
Last week, Capital Economics said full US tariffs would chip 0.8 percentage points from India's economic growth both this year and the next.
Foreign Minister S. Jaishankar also said trade talks continued and Washington's concern over Russian oil purchases was not equally applied to other major buyers such as China and the European Union.
The US could be a major energy supplier to India, an official of its New Delhi embassy said on Tuesday.
The US is committed to collaborate with India on exports of high-quality products and services to help achieve energy security and economic growth, the official added.
Prime Minister Narendra Modi has vowed not to compromise the interests of Indian farmers, even if it entails a heavy price.
Mr Modi is also moving to burnish ties with China, planning his first visit there in seven years at the end of the month.
Reuters/ABC
