What U.S. Tariff Trade Tensions Mean for the Indian AI Ecosystem While the tariff war between the U.S. and China has spiraled—from 10% in February to 145% on Chinese goods, met with 125% retaliation—India has taken a more pragmatic route by choosing dialogue over retaliation
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"From the Indian perspective, working out something with the US bilaterally is not at all a sort of negative or unwanted situation. On the contrary, it has long been our objective," said Indian Foreign Minister Subrahmanyam Jaishankar, responding to the United States' recent reciprocal tariffs announcement on April 2, 2025—ironically made on its Liberation Day.
In a sweeping move, the U.S. administration imposed a 26% levy on Indian imports. However, it also announced a 90-day suspension of reciprocal tariffs above 10% for all countries except China, which now faces a hefty 145% duty. In response, China has retaliated with a 125% tariff on U.S. goods, intensifying what is quickly escalating into a global trade war.
India's AI startups caught in the crossfire
India's deepening reliance on U.S.-made chips and cloud infrastructure raises critical questions about the vulnerability of its AI startup ecosystem amidst these trade barriers.
Ankush Sabharwal, Founder and CEO of CoRover, acknowledged the short-term risks but remains optimistic: "While recent tariffs on imported infrastructure may pose short-term challenges for Indian AI startups, including increased costs and vulnerability... Indian AI startups that adapt quickly and find alternatives—like local chip manufacturers or non-U.S. cloud services—could emerge stronger," says Sabharwal.
He also encourages enterprises to increase investment in domestic R&D, local manufacturing through the PLI scheme, and funding diversification to help mitigate risks and unlock new opportunities.
In contrast, Dushyant Sapre, CEO and Founder of Swish Club, issued a sharper warning. He says, "The ongoing tariff war is poised to significantly impact India's AI startup ecosystem. Indian AI startups remain highly vulnerable due to their reliance on U.S.-sourced GPUs such as NVIDIA H100 and cloud platforms like AWS and Azure. Recent U.S. export restrictions on high-end chips threaten access to critical infrastructure, raising costs and delaying projects."
Further, he notes that over 80% of Indian startups depend on foreign cloud providers, while domestic GPU manufacturing remains nascent. "However, India is addressing this via the IndiaAI Mission, which aims to deploy over 10,000 GPUs by 2025 and establish an INR 100/hour subsidised compute facility for startups, offering a path toward reduced reliance," Sapre adds.
Nevertheless, Neeti Sharma, CEO of TeamLease Digital, believes the current disruptions could become long-term opportunities. "While there are challenges—like possible export restrictions or higher chip costs—these hurdles also encourage Indian startups to innovate. The National AI Mission's plan to deploy over 10,000 GPUs shows ambition. As India strengthens its semiconductor industry and explores more cloud options, startups can become more resilient."
Sharma also feels that by focusing on local talent and partnerships, Indian AI companies can turn these challenges into growth opportunities and greater self-reliance.
Funding front
When it comes to capital, the U.S. contributes over 40% of late-stage funding in Indian startups. With increasing protectionist policies, regulatory uncertainty, and the global trade war, capital flow may be at risk.
"Yes, a slowdown is likely," says Sapre. He believes that U.S. investors may become more cautious, given the uncertainty around supply chains and regulatory risks, potentially reducing funding for Indian AI ventures.
Sharma, however, remains confident in investor interest: "While trade tensions and tariffs might make some U.S. investors more cautious, I don't think it will lead to a major slowdown. India's AI ecosystem remains attractive due to innovation in healthcare, fintech, and agritech. The government's efforts to ease trade barriers and support startups are crucial. As companies diversify away from China, India's role in global supply chains makes us an even more appealing destination."
India's approach on tariffs
While the tariff war between the U.S. and China has spiraled—from 10% in February to 145% on Chinese goods, met with 125% retaliation—India has taken a more pragmatic route by choosing dialogue over retaliation.
For New Delhi, the initial 26% tariff was less severe than those imposed on other major economies. With the 90-day suspension, India now only has to pay the baseline 10% tariff.
Meanwhile, India and the U.S. are engaged in negotiating a bilateral trade agreement (BTA) aimed at more than doubling bilateral trade from the current USD 191 billion to USD 500 billion by 2030. The first phase of the deal is expected to conclude by autumn this year.
An official government statement reassured Indian businesses: "The Minister assured exporters that the country is working proactively and exploring solutions in the national interest. The team working on the BTA is striving for the right balance, and he encouraged exporters to remain optimistic and focus on the silver lining in the current global environment."
