20 Aug 2025 : India’s micro, small and medium enterprises (MSMEs) engaged in textiles, diamonds, and chemicals are expected to face the sharpest impact from the recent hike in U.S. tariffs, according to a report by CRISIL Market Intelligence and Analytics. The move threatens to strain export revenues and intensify challenges for sectors already dealing with global economic uncertainties.
Key Findings from CRISIL
CRISIL’s analysis reveals that the U.S., one of India’s largest trade partners, has targeted a range of imported goods with higher tariffs, citing the need to protect domestic industries. Since India exports a significant share of textiles, cut and polished diamonds, and specialty chemicals to the U.S., these sectors are poised to be the worst affected.
- Textiles: With India being a top supplier of garments and home textiles to the U.S., higher tariffs will make Indian products less competitive against Bangladesh, Vietnam, and Mexico. MSMEs, which account for over 70% of India’s textile exports, could suffer sharp margin pressures.
- Diamonds and Gems: The diamond industry, concentrated in Gujarat’s Surat, faces a setback as the U.S. is the largest buyer of polished diamonds. Any increase in tariffs will reduce demand, affecting thousands of small and medium cutting and polishing units.
- Chemicals: Specialty chemicals, dyes, and intermediates exported by India may see reduced orders due to higher costs for U.S. importers. This poses a direct threat to MSMEs, which play a dominant role in the chemical value chain.
MSME Concerns
The MSME sector, often described as the backbone of India’s exports, is particularly vulnerable because it operates with thin margins, limited financial reserves, and heavy reliance on overseas markets. Industry experts warn that smaller firms may be forced to slash jobs or shut operations if export orders decline significantly.
“MSMEs don’t have the pricing power to absorb higher tariffs. Either they will lose market share or see a drop in profitability,” CRISIL said in its note.
Government and Industry Response
The Indian government has expressed concern and is likely to raise the issue in bilateral trade dialogues with the U.S. Officials are exploring the possibility of diversifying markets for MSME exports, including Europe, the Middle East, and Southeast Asia.
Export promotion councils have urged the government to provide relief measures such as interest subsidies, enhanced credit support, and quicker GST refunds to help firms stay afloat.
Industry leaders are also pushing for accelerated free trade agreements (FTAs) with other regions to counter the impact of rising protectionism in the U.S. “Without diversification, our dependence on the American market will continue to expose us to such risks,” said a representative from the Federation of Indian Export Organisations (FIEO).
Broader Economic Implications
The U.S. accounts for nearly 18% of India’s total exports. A prolonged tariff regime could shave off a significant portion of India’s export earnings, complicating efforts to achieve the government’s ambitious $1 trillion export target by 2030.
Experts warn that prolonged disruptions could affect employment across labor-intensive sectors like textiles and gems, which together employ millions of workers. The ripple effect could also dampen India’s GDP growth outlook if MSMEs fail to recover.
Conclusion
While India’s export ecosystem has weathered tariff challenges before, the latest U.S. move puts MSMEs in textiles, diamonds, and chemicals at the frontlines of risk. Policymakers, industry bodies, and exporters will need to act swiftly to cushion the blow, diversify markets, and strengthen competitiveness to ensure that small businesses—the backbone of India’s exports—remain resilient
Summary:
According to CRISIL, India’s MSMEs in textiles, diamonds, and chemicals will be the most affected by new U.S. tariffs. Higher duties will cut competitiveness, hurt margins, and risk job losses. Experts urge government relief and market diversification to safeguard exports