Tariffs, textiles & tough choices: Will India’s MSMEs survive the storm

The fresh 25%+25% US tariff in response to India’s continued purchase of crude oil from Russia. The latest tariff has come as a blow to India’s apparel exports to the US, worth around USD 4.5 billion. This setback has come at a time when India is aiming to scale its textile exports to US $ 100 billion. 

 According to the Finance Ministry’s Monthly Economic Review (July 2025), global trade has shown resilience so far, partly due to frontloading of imports before tariff deadlines and improving macroeconomic conditions. But turbulence lies ahead. The World Trade Organization projects global merchandise trade will grow just 0.9% in 2025, well below the pre-tariff estimate of 2.7%. The drag is expected to intensify in late 2025 and throughout 2026. 

The US tariff lands hardest on India’s textile exporters, already battling tough competition from Vietnam and Bangladesh. India’s garment exports fell from USD 15 billion in 2013–14 to USD 14.5 billion in 2023–24, while Vietnam and Bangladesh surged ahead to USD 33.4 billion and USD 43.8 billion in a decade, respectively. 

“The immediate impact may be harsh. However, exports to the US account for just 6% of India’s USD 179 billion textile industry—a cushion against deeper damage,” said Sonal Arora, Country Manager, GI Group Holding. 

The real question is whether India’s MSMEs, many of which dominate textiles and handicrafts, can adapt fast enough. Beyond textiles, MSMEs in leather goods, gems and jewellery, and auto components also face vulnerability from protectionist shocks. 

Rajesh Rokde, Chairman, All India Gem and Jewellery Domestic Council (GJC), sees the imposition of a 50% tariff by the US on Indian gold jewellery exports as a direct blow to the country’s artisanal legacy. “Our jewellery sector supports millions of livelihoods, from artisans in small towns to exporters in major metros. This tariff threatens to erode decades of trust and trade relations painstakingly built with American buyers,” he warned. 

To survive, experts say MSMEs will need to accelerate diversification into new markets—particularly Europe, the Middle East, and Africa—while also tapping into the surge in domestic e-commerce demand. India’s recent free-trade agreements and G20 diplomacy could offer fresh openings if leveraged effectively. 

Agarwal emphasised that for young businesses, especially, the ability to scale the right teams at the right time will define whether these challenges become setbacks or opportunities.

India supplies almost one in five generic medicines consumed globally, with the United States accounting for a significant share of those exports. "In this scenario, any increase in tariffs from the US will inevitably affect competitiveness and squeeze margins for manufacturers here," said Arpit Bhatia, Director at Laborate Pharmaceuticals. Yet, he sees this as a reminder of the resilience that has always defined the Indian pharmaceutical sector. "Our domestic market is expanding rapidly and is projected to reach USD 130 billion by 2030, creating a strong counterbalance to export-driven shocks. Indian pharma has weathered patent cliffs, regulatory changes, and supply chain disruptions in the past, and each time it has adapted and strengthened." Bhatia calls for a focus not just on protecting volumes, but on keeping compliance, innovation, and affordability at the core. "In doing so, we can continue to serve global markets whilst meeting India’s own rising demand for quality healthcare."

Protectionist measures, introduced at a time when global markets are already volatile, risk fuelling further uncertainty. For Indian MSMEs, the immediate challenge will be coping with lost margins, squeezed competitiveness, and strained buyer relationships. Yet, the longer-term resilience of the sector may rest on three levers:

The survival of thousands of small enterprises—and the preservation of India’s cultural and economic heritage—depends on how quickly MSMEs and policymakers together chart a new course. For India’s artisans and entrepreneurs, the coming years will be a true test of resilience.