US tariffs: Manufacturing & labour-intensive sectors to bear brunt, say experts

Higher tariffs imposed by the US on India could negatively impact India's labour-intensive sectors as well as manufacturing and pose a downside risk to the country's economic growth if the 50% duty levy remains in place, experts said. The experts also flagged downward risks to the rupee.

"The second-round impact on private capex, domestic manufacturing as well as labour markets could emerge as a key risk over the coming months in the event that these tariffs stick," said Sakshi Gupta, principal economist at HDFC Bank.

Gupta pointed out that the hiring intentions had already remained broadly muted in first quarter of cureent fiscal year.

"The implication for the labour market could be seen in sectors like gems and jewellery, textiles, leather and footwear," she added.

India's unemployment rate stood at 5.6% in June, with rural and urban jobless rates at 4.9% and 7.1%, respectively.

The US imposed an additional 25% tariff on India over oil purchases from Russia. Last week, President Donald Trump announced a 25% tariff on the country. The new tariff of 50% will be effective from August 27.

"This is not good news as the total rate will now be one of the highest imposed by the US. The clue is to negotiate with the government soon," said Madan Sabnavis, chief economist at Bank of Baroda.

He pointed out that the challenge is balancing decline in exports and higher import bill on oil, and the latter will have other macroeconomic implications.

Experts warn that if the tariffs are not lowered, India's gross domestic product (GDP) growth may take a hit.

Gaura Sengupta, chief economist at IDFC First Bank, estimated that the 50% tariff will put a 0.4% drag on FY26 GDP growth.

Gupta from HDFC Bank said, "We will have to significantly lower FY26 GDP growth forecast to below 6%, baking in at least a 40-50 bps hit-double from our earlier estimates".

From a market perspective, the announcement is likely to increase pressure on the rupee, economists noted.