With US tariffs on India set to double to 50 per cent starting Wednesday (August 27), the impact could extend much beyond just the direct loss of goods exports. Risk aversion has already been dampening private capital investment, and trade friction with the US – India’s largest export market – could drag momentum in the performance of capital-intensive Production Linked Incentive (PLI) schemes.Even before the US tariffs came into play, Indian industry had flagged the lack of domestic demand as one of the key concerns holding back capacity addition. This has resulted in weak PLI performance in a number of sectors. While schemes requiring lower capital investments have taken off faster, investors appear to be sitting on the fence when it comes to sectors that require higher investments – and a trade war could deepen the challenge.Data shared by the Commerce and Industry Ministry in a reply to a parliamentary question showed that PLI applications in sectors requiring large investments, such as Advanced Chemistry Cell (ACC) batteries and high-efficiency solar PV modules, saw the least number of clearances. Since the scheme came into effect, the government has cleared only four battery manufacturing applications and 14 applications in the solar module sector. Clearances in ‘drones and drone components’ also stood at 23, according to the data shared by the Ministry.In contrast, sectors requiring lower capital investment and lower risk appetite have been booming. As many as 182 applications in the food products category, 109 in the speciality steel sector, and 95 in the automobiles and auto components sector have been approved – indicating a sharp difference in private companies’ risk preferences.Capex and uncertainty“So far, the mobile, telecom and pharmaceutical sectors, which benefit the most, are relatively low in capex intensity. Players are more cautious in capital-intensive sectors such as advanced chemistry cells and solar photovoltaic modules. Their capex was expected to pick up post fiscal 2025, but trade frictions could disrupt the momentum,” Crisil said in a report on Monday.This comes at a time when private capital investment has failed to see a robust revival unlike in case of public capex. In an interview with The Indian Express, Ram Singh, an external member of the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC), said that companies have chosen to use their cash “not as leverage to make investments in production lines but to distribute it as dividends or invest in some form of equity”. Singh said that private capex remains low compared to what is required for a 7–8 per cent growth rate, and that a broad-based pick-up in demand is needed for “private investment to pick up”.Industrial dependence on tradeAlmost half of the planned industrial capex is exposed to risks related to global trade – either due to dependence on imported raw materials, technology, or reliance on export markets, according to a Crisil analysis. This vulnerability stems from the potential impact of events such as increased US tariffs, EU climate policies, and over-reliance on China, which could disrupt business continuity and expansion plans, the rating agency said.Story continues below this ad“The uncertainty linked to such events might lead companies to delay, or in some extreme cases, defer their expansion plans. For instance, in mobiles, electronics and solar PV modules, we depend on China for import of components and on the US for a substantial portion of our exports. This makes these segments vulnerable to trade uncertainties on both ends, though government support and incentives provide some comfort. On the other extreme, a sector such as cement is least exposed to external vagaries and is completely dependent on domestic demand, and hence there is very little possibility that changes in tariffs would derail expansion plans,” Crisil said.Notably, among India’s export destinations, the US accounted for 18 per cent during the last financial year, highlighting reliance on the US market. In the past five years, while India’s merchandise exports logged a 5 per cent compound annual growth rate (CAGR), exports to the US grew faster, clocking a 7 per cent CAGR, the agency pointed out.Cushion against tariffsTrade experts suggest that steep US tariffs could result in a decline in GDP growth from 6.5 per cent to 5.6 per cent. However, with tax reforms, ease-of-doing-business measures, and aggressive export diversification, India could offset the shortfall and sustain robust growth.While the new US tariffs will dent labour-intensive sectors like textiles, jewellery, shrimp, carpets, and furniture, most Indian firms can redirect exports to other markets and tap into a growing domestic economy, New Delhi-based think tank GTRI said.Story continues below this ad“With exports forming only 20 per cent of GDP (compared to 90 per cent for Vietnam), India’s growth is less vulnerable to external shocks. The government’s ongoing taxation and business reforms further enhance competitiveness, reduce costs, and position India to seize opportunities in new global markets,” a GTRI report said.