The recent imposition of a 25% tariff with penalties on Indian exports to the U.S. is a “bad business decision,” but global supply chains are likely to self-correct over time, according to an SBI Research report released Friday. Indian firms should seize this moment to reassert the ‘Made in India’ brand as a symbol of uncompromising quality, it added.

The U.S. is India’s largest export destination, accounting for 20% of outbound shipments in FY25. However, India’s export base is relatively diversified, with the top 10 countries contributing just 53% of total exports. Of India’s exports to the U.S., 63% are concentrated in 15 product categories, with electronics, pharmaceuticals, gems and jewellery, and machinery making up nearly half.

Previously, U.S. tariffs on many of these items ranged from 0% to 10.8%. With the hike, even high-growth exports like smartphones and solar cells—fueled by India’s Production Linked Incentive (PLI) schemes—will now face a steep 25% duty.

Pharmaceuticals are a critical area of concern. India supplies nearly 47% of generic medicines to the U.S., particularly essential oncology drugs and antibiotics. Relocating production could take the U.S. 3–5 years, potentially leading to drug shortages and rising prices for American consumers. For Indian pharma firms, earnings could drop by 2–8% in FY26 if the tariffs persist.

The report also noted that India’s average Most Favoured Nation (MFN) tariff on U.S. imports stands at around 20%, with sectors like automobiles, FMCG, and textiles facing tariffs above 15%. SBI suggests India could explore reducing tariffs in such areas to mitigate reciprocal trade tensions.