What the Tariffs Change—and What They Don’t
The recent decision by the United States to impose fresh tariffs on Indian goods has raised questions about the possible impact on India’s employment landscape. At first glance, such measures may seem worrying, especially for labour-intensive export clusters like textiles, gems and jewellery, and chemicals. However, a deeper economic assessment reveals that the macro-level effects are likely to be limited. India’s growth and jobs are overwhelmingly powered by domestic demand, and its export base is diversified enough to withstand shocks from one market, even if that market is the US.
India’s Exposure to the US Market
The United States is India’s single largest trading partner, accounting for roughly 18–19 percent of India’s merchandise exports in 2023–24. But in the context of the overall economy, this exposure is small. Merchandise exports themselves constitute only about 12–13 percent of GDP, according to the World Bank’s aggregation of India’s national accounts. This means that all of India’s exports to the US are equal to roughly 2 percent of GDP. In contrast, household consumption—the largest driver of employment—contributes close to 58–61 percent of GDP. Thus, while tariff shocks will hurt select sectors, they will not derail the overall jobs story.
The strength of India’s domestic demand is the most important cushion. Data from MoSPI shows that Private Final Consumption Expenditure (PFCE) continues to account for more than half of the economy, ensuring steady demand for construction, retail, transport, local manufacturing, and consumer-facing services. Employment in these areas is overwhelmingly tied to internal consumption rather than exports. Labour market data from the Periodic Labour Force Survey (PLFS) further reinforces this resilience, showing low unemployment levels (3.2 percent in 2023–24) and rising labour force participation. These factors provide the economy with the flexibility to absorb shocks in specific industries.
Diversified Export Base and Trade Diversion
Some labour-intensive clusters such as Surat’s diamond polishing units, Tiruppur’s garment industry, Moradabad’s brassware sector, and Ludhiana’s bicycle and textile hubs depend significantly on exports to the US and will feel a sharper pinch. In these areas, tariff hikes may lead to order postponements, price renegotiations, and, in the short run, reductions in overtime or temporary layoffs. For smaller exporters operating on thin margins, the immediate impact could be acute. However, most of these products are also in demand across other geographies, which provides exporters with the option to redirect sales.
India’s export base is far more diversified than it was two decades ago. The UAE, the European Union, the UK, Saudi Arabia, Bangladesh, and ASEAN countries together absorb more than 80 percent of India’s exports. Commerce Ministry data shows that even as US demand fluctuates, exporters actively use hubs such as Dubai and Rotterdam to reroute shipments to alternative buyers. This ability to shift volumes limits the long-term employment risk of US tariff actions. Moreover, merchandise exports have stayed strong at USD 437 billion in 2023–24, despite global headwinds, compared to USD 291 billion in 2020–21 during the pandemic and USD 314 billion in 2013–14.Crossing the USD 430 billion mark during a period of economic downturn demonstrates that India’s export base is quite resilient.
Policy Options to Limit Job Losses
In the near term, the tariff episode may translate into stress for export-oriented MSMEs, where employment is clustered. But over a 12–18 month horizon, firms are likely to reprice products, diversify markets, and adjust production mixes to serve domestic buyers. The national-level jobs impact is therefore expected to be modest. The real risk lies in localised employment stress, which calls for targeted policy responses.Policy intervention through measures such as short-term credit support, trade promotion assistance, and faster market access initiatives for affected clusters. Targeted measures such as interest subvention and export credit can help MSMEs ride out cash-flow crunches.
At the same time, new trade pacts—including the India–UK Comprehensive Economic and Trade Agreement (2025), which expands duty-free access for textiles, gems, leather, and engineering goods and is projected to double bilateral trade to around USD 120 billion by 2030, and the India–Maldives agreements, covering trade, infrastructure, and fisheries—create fresh outlets for Indian exports. Export promotion councils and Indian missions should build on these ties to accelerate diversification into ASEAN, Africa, and Latin America. At home, sustaining public investment and boosting domestic consumption remain critical, while reskilling under Skill India can help workers in vulnerable clusters transition smoothly.
Conclusion: From Risk to Resilience
In conclusion, while the new tariffs from the US will sting certain export-driven sectors, the broader employment outlook for India remains resilient. The sheer weight of domestic consumption, combined with a diversified export basket, means that the economy has strong buffers. For policymakers, the task is less about firefighting a national jobs crisis and more about providing precision support to exposed clusters. If this is done well, the tariff shock will be remembered less as a crisis and more as an opportunity to re-route trade and strengthen India’s internal drivers of growth.
