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The Tariff Effect: How Can India’s Tech Sector Pivot to Absorb Global Trade Shocks?
The Tariff Effect: How Can India’s Tech Sector Pivot to Absorb Global Trade Shocks?

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The US government’s imposition of additional 25% tariffs on India have dampened sentiments across industries. The total tariff rate now imposed on India is 50% (among the highest in the world) and has come into effect from 27 August 2025. Products such as garments, footwear, gems and jewelry, furniture, sporting goods, shrimp, and chemicals etc are expected to witness a sharp rise in duties. As per the Global Trade Research Initiative, these levies could impact Indian exports worth $60.2 billion and India’s labour-intensive sectors may face upto a 70% reduction in shipments.

Source: Secondary Research; Tariff on China as part of US-China agreement

Implications for the tech industry

While the tech services sector has not been directly taxed, there are large scale indirect implications that the tech industry needs to brace itself for.

  • Tightening of discretionary spending: The imposition of tariffs is expected to trigger inflation in the US, thereby resulting in a reduction in discretionary spending by US-based firms.
  • Slowdown in deal cycles and delays in contract rollouts: As manufacturing, logistics and retail industries face higher input costs in the US, they would look to cut consulting and IT outsourcing contracts leading to slowdown in deal cycles and delayed contract rollouts.
  • Replaceability with other offshore markets or onshore automation: Currently, US firms depend heavily on Indian talent. However, with the emergence of other competitive offshore markets, it remains replaceable either with these markets or ushering in higher level of onshore automation.
  • Growing uncertainty around workforce mobility: The rising uncertainty about workforce mobility and evolving digital taxation frameworks could redefine how cross-border services are priced and delivered.
  • Increased cost of component products leading to decreased margins: While services have been exempted from tariff imposition, component products are subjected to tariffs, which will increase their costs, decreasing margins for service providers and potentially raising prices for customers.

Weathering the challenges

Owing to these factors, tech companies with higher discretionary digital exposure and deeper US footprints will be impacted more as compared to bigger firms that are engaged in stable, predictable maintenance contracts. Further, since trade tensions and tariff-induced uncertainties can exacerbate existing visa challenges for Indian tech professionals, especially those on H-1B and other intra-company transfer programs, this can threaten long-standing talent pipelines between India and the US. In this regard, companies that can swiftly pivot to hybrid delivery models, diversify geographically and embed artificial intelligence (AI) at scale will be better positioned to not just weather demand volatility, but lead in an increasingly fragmented global landscape.

Market diversification, a must

Since there is no clarity on how long the current 50% tariff rate on select Indian goods will last, the Indian government has started undertaking initiatives to diversify its markets and initiated free trade agreements (FTAs) with several countries. One such FTA called Comprehensive Trade and Economic Agreement (CETA) has been signed with the UK in July 2025, which provides unprecedented duty-free access to almost 99% of India’s exports to the UK. For the tech services sector, it provides greater market access in IT and IT-enabled services and digital trade. In addition to the UK, India is currently engaged in FTA negotiations with Oman, Australia, EU, Sri Lanka, Peru, Chile, New Zealand, ASEAN region and Korea.

Tech companies have also started doubling down efforts to strategically diversify revenue streams beyond the US market, targeting regions like Australia, the Middle East, and the Nordics through new centers and acquisitions. This expansion addresses rising technology spending in these areas and mitigates risks associated with US market volatility and visa challenges. Moreover, companies are bolstering cybersecurity and consulting capabilities to meet growing regional demands.

Government industry collaboration essential to enhance resilience

With both the government and the tech industry undertaking efforts to diversify beyond the US market to dodge tariff turbulence, collaboration will be key to promote investment in innovation and non-US markets to offset risks. In this regard, the Indian government’s support in forging FTAs with non-US markets would enable tech companies to diversify client bases and usher in greater digitalization and AI adoption to bolster overall industry resilience. 


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Kuhu Singh
Manager, Research



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