Reserve Bank of India (RBI) MPC member Nagesh Kumar has highlighted that rising US tariffs pose a significant risk to India's export sector, particularly textiles and pharmaceuticals. With the US accounting for one-fifth of Indian exports, the central bank has stressed the urgency of diversifying into European markets. Investors should watch how export-oriented companies manage their reliance on the US against this changing trade landscape.
India’s export sector is facing increasing pressure as trade tensions with the United States continue to rise. In the minutes of the Reserve Bank of India's (RBI) August 2026 monetary policy meeting, MPC member Nagesh Kumar flagged the risks posed by US tariff measures, emphasizing the need for India to quickly diversify its export markets to protect its external trade.
The United States currently stands as India's largest export destination, accounting for approximately 20 percent of total shipments. The concentration is even higher in labor-intensive industries, such as textiles and garments, where the US market absorbs nearly one-third of India’s exports. This heavy dependence has made the sector vulnerable to recent changes in American trade policy. Currently, the US has already applied a 10 percent tariff on top of existing duties on certain Indian goods, citing allegations related to labor practices. Additionally, a Section 301 investigation regarding production capacity is currently underway, adding further uncertainty for domestic exporters.
Looking further ahead, the report highlighted concerns regarding potential tariffs on pharmaceutical products. There are indications of significant tariff hikes on generic drug imports, with potential increases to 100 percent in 2028 and up to 200 percent by 2029. Such policy shifts would place severe pressure on India’s pharmaceutical exporters, a key contributor to the national trade balance.
To counter these threats, the central bank has pointed toward the importance of recent trade agreements with European nations. Free Trade Agreements with the United Kingdom and the European Free Trade Association (EFTA) are already in effect. Furthermore, an agreement with the European Union, which was signed in January 2026, is expected to be implemented by the end of this year. These deals are intended to provide Indian businesses with better access to European markets, offering a level playing field similar to that enjoyed by competitors like Vietnam and Bangladesh.
Investors in export-heavy sectors, including textiles, garments, and pharmaceuticals, should track how companies adapt to these trade shifts. The ability of businesses to successfully pivot toward European markets may determine their long-term growth and stability. Beyond trade policy, global geopolitical risks—such as the ongoing conflict in West Asia and potential disruptions in the Strait of Hormuz—continue to cast a shadow over the broader economic outlook. The primary monitorable for investors will be how efficiently companies can transition their export focus to Europe and whether these new agreements can effectively offset the potential loss of market share or increased costs in the US.