In the event that US President Donald Trump’s tariffs take effect, the Reserve Bank of India (RBI), as it has in the past, will intervene and offer financial assistance to the most severely affected industries to help them weather the storm, RBI Governor Sanjay Malhotra stated in Mumbai on Monday, August 25, 2025.
Possible Impact of Trump’s 50% Tariff on Indian Exports
Through monetary policy, the RBI essentially helped the economy during COVID by easing credit access for MSMEs and imposing a ban on term loans. In response to a query during the FIBAC annual conference, which was hosted by the Indian Banks’ Association (IBA) and FICCI, the governor stated that the 50% tax has not yet gone into effect.
Appreciating the move, Arunabh Sinha, CEO & Founder, UClean stated, “The RBI stepping up for tariff-hit sectors is a confidence signal. Tariffs can quickly raise costs and squeeze margins, and knowing the central bank is ready to cushion that shock gives businesses the breathing space they need. What really stands out is the RBI’s push for trade in local currencies. That’s a game-changer. It cuts dollar dependence, trims transaction costs, and shields companies from the whiplash of currency swings.”
” For the brands that is expanding into international markets, smoother local-currency trade directly strengthens our ability to scale across borders. RBI alone cannot erase the pain of tariffs. But in an uncertain global environment, reassurance matters. When the central bank signals stability, it helps startups and growth-stage companies plan with conviction instead of hesitation. For entrepreneurs, that predictability is half the battle won. In short, this is the RBI saying: ‘Yes, the global headwinds are strong, but Indian businesses will not sail alone.’ And that assurance is priceless for anyone building for the long run,” Sinha added.
Sectors at Risk – Textiles, Auto Parts, Gems, Shrimp
The RBI hopes that the impact of the ongoing negotiations will be low. As you are aware, 45% of exported goods are exempt from taxes, while the remaining 55% may have an effect on certain industries, including textiles, auto parts, gems and jewellery, shrimp, and MSMEs.
RBI Measures to Cushion the Economy
The government is investigating it, Malhotra added. The RBI has been in a period of relaxing. In order to give the economy enough cash, it lowered the repo rate by 100 basis points. The federal bank would provide any assistance that the RBI deems necessary for the expansion of the economy, including that of the most affected sectors, as soon as possible.
“It’s an important area on which the RBI has been working for many years, and it’s important for the country to develop trade in local currency,” Malhotra responded when asked about the rupee’s internationalisation. It protects us from foreign exchange fluctuations.
He stated that “healthy trade is happening in local currency” and that India presently has agreements with four nations: the Maldives, Mauritius, Indonesia, and the United Arab Emirates. “It’s a slow process and would take years and decades to evolve to have trade in local currencies,” he remarked when asked how it would work out.
Strengthening Banking Correspondents for Financial Inclusion
In order to accomplish the aims of financial inclusion, Malhotra emphasised in his conference speech the necessity of significantly fortifying the Banking Correspondents (BCs) network.
He went on to say that we must never forget that nearly two-thirds of our nation’s population lives in rural areas, and we have a duty to them all. Although practically every town within a 5-kilometre radius now has banking access, there is still room to improve it. In our nation’s sparsely populated areas, BCs are a useful conduit for service delivery.
To increase the calibre, reliability, and accessibility of financial services, this channel must be reinforced. Not only is there room to enhance them, but they also need to be trained and have their service offerings expanded. He underlined that while this will increase the BCs’ financial sustainability and viability, it will also enhance the calibre and scope of their services.
Quick
Shots
•RBI ready to support sectors impacted
by potential US tariffs.
•Proposed 50% tariff could affect
Indian exports like textiles, auto parts, gems & jewellery, shrimp, and
MSMEs.
•RBI provided relief during COVID
through credit easing, loan moratoriums, and repo rate cuts.
•Repo Rate Cut by 100 bps – Recent
policy step to inject liquidity and support growth.
The Bretton Woods agreement made the US Dollar the official leader of the World’s reserve currency supported by the world’s largest gold reserves. This was after the Second World War. Even today the USD is one of the world’s strongest currencies. The Dollar bill as we know it today was printed in 1914. Even today, the central banks of various countries, including India, hold almost 60% of their reserves in USD.
In simple terms, the value of any currency increases with an increase in the demand for it and decreases with the decrease in demand for it. On the global stage, the force of currencies is determined by central banks. However, the demand for the said currency is determined by the demand for the goods and services produced by the country.
The same rule applies to foreign exchange requests. The higher the demand for foreign exchange, the more currency falls.
Why the Indian Rupee Is Falling Against the Dollar?
In the post-Covid world of 2022, India has seen a steady decline in the value of INR against the dollar. It is imperative to understand that the Indian Rupee has steadily downgraded against the dollar for several decades. One of the key reasons for this has been the rising inflation affecting the Indian Economy.
Currently, the Indian Rupee is valued at around INR 79 to 1 USD. The last couple of weeks has seen the Indian Rupee reach an all-time low value of INR 79 against 1 USD. There are several reasons for this steep decline, some domestic as well.
One of the key reasons for this decline is the pullout of FIIs in an uncertain global market. Added to this are the geopolitical uncertainties due to the Russia-Ukraine war.
This has led to investors retreating from emerging markets like India to the safety net of the USD. According to the latest figures, the Foreign Portfolio Investor outflow is to the tune of 2.11 Lac Crore.
Reasons domestic in nature include the steep price rise in crude oil. Added to this pressure is the elevated cost of edible oil again due to the Russia-Ukraine conflict. In light of the fact that most of India’s crude oil and edible oil requirements are imported, this elevated price will continue to put pressure on the Indian Rupee.
The Indian Rupee’s performance has been backed into a corner. Worsening terms of trade on the global platform, geo-political instability, FIIs foreign institutional investor outflow and the crowning glory – RBI’s FOREX stance. However, the scenario is not as grim as it looks on the outside.
On the Global Stage, the Indian currency has held up against the dollar a far sight better than some other counterparts. This showcases a light at the fast-approaching end of the tunnel.
US Dollar to Indian Rupee Exchange Rate
What Does the Future Hold for Indian Rupee?
The effects of the war in the short term will be seen in the upcoming quarter which might continue to put pressure on the Indian Rupee. In the short-term future, the Indian Rupee may settle down between INR 77 to INR 79 against 1 USD. However, there are many reasons to look forward to a strengthening INR in the global markets in the future.
First and foremost is the fact that the RBI has a comfortable FOREX reserve. Even though the Indian current deficit is well over 90 billion USD, this reserve would help prevent further weakening of the Indian Rupee against the USD.
While the COVID-19 pandemic brought the world to a standstill for a few months, it also triggered companies to relook at their internationally located manufacturing units, most of them based in China.
The overall unfriendly policies of the Chinese Government have also prompted most manufacturing companies to start looking at alternative emerging markets like India and Indonesia to set up their plants. This is also likely to attract FIIs back into the country and increase their investment portfolios
As the Indian economy strengthens with the domestic financial markets edge towards a bull run, the signs are all there, that even though the immediate future is slightly bleak, there is every reason to hope for a fantastic recovery of the Indian Rupee against the USD.
FAQs
What are the reasons for the decrease in rupee value?
Rising crude oil prices, rising import costs and the Russia-Ukraine war are some of the reasons for the fall in the rupee against the us dollar.
What happens when the rupee falls against the dollar?
If the rupee faals against the dollar the cost of raw materials will increase which will be passed on to the consumers so the cost of products will also increase.
One of the major reasons for the growth of the world economy as a whole throughout this 21st century is the East Asian countries. Comprising mainly of countries like China, Taiwan, and South Korea, these countries have revolutionized the world through their innovative processes in the world of manufacturing and supply chain for a wide range of products, be it semiconductor chips to automobiles to any product you can think of. This is one of the major reasons that we as consumers can enjoy the luxury of products that we would have not otherwise. Even the Prime Minister of India, Shree Narendra Modi, launched an “Act Far East Policy” in 2019, with the perspective of making our relations between Japan and South Korea even better.
While other countries of East Asia are interlinked successfully to the global economy, this has not been true for North Korea, which rather follows an isolationist path and is not connected at all to the global economy. This is mainly due to the policies of the Kim dynasty, which has ruled North Korea since Kim Il-sung took the reins of the country in 1948 and has been continued for generations with his grandson Kim-Jong Un currently ruling North Korea since 2012.
Isolationist North Korea
This map demonstrates to us how isolationist North Korea is. In the map, which is taken from a 2014 Business Insider report, we can observe how there are various routes of maritime transportation of cargo ships between China and South Korea and then how completely there are negligible cargo ship routes that involve North Korea even though they are sandwiched between China and South Korea here. No wonder, the exports of North Korea, a measly 2.2 billion dollars, is underwhelming in comparison to the two behemoths in China (which exports goods worth 2.6 TRILLION dollars and South Korea (which exports goods worth 531 billion dollars) they are sandwiched in-between.
North Korea has also faced a lot of economic sanctions due to its nuclear weapons program. The United Nations have passed several resolutions ever since North Korea had its first nuclear test in 2006, which effectively makes exporting goods to Pyongyang (the North Korean capital) futile unless it is basic amenities like nutrition, sanitation, and water. The European Union has also announced an embargo on virtually on all products to be exported from North Korea.
So this surely makes us wonder if North Korea is so isolationist, how can they earn revenue which helps them run their economy despite all these sanctions? In this article, we would discuss how various North Korean governments have earned the revenue they have accumulated in the first place despite their isolationist policies.
It can be seen China and North Korea have strong trade relations. This is mainly due to geopolitical reasons, as China sees North Korea as a perfect counter to the strong American relations with Japan and South Korea.
Import market in North Korea
As per a 2017 Statista report, a whopping 75% of its overall trade is with China. This can be seen by this pictorial representation, where China accounts for 94% of North Korea’s imports and 91% of North Korea’s exports.
Export market in North Korea
So what does North Korea mainly export? One of its main exports is COAL. North Korea has 661 Million tons of proven coal reserves, which makes it the 35th largest in the world. And out of these reserves, it is widely reported in a 2017 Observatory of Economic Complexity (also known as OEC) report that North Korea exports around 368 million dollars worth of coal, with China being one of its biggest beneficiaries.
In 2017, China announced that it would be ending all coal exports from North Korea to comply with the various sanctions North Korea got due to its nuclear program, but as per a confidential United Nations report, coal is still exported to China through illegal shipments. In fact, as per a 2021 Financial Times report, it is widely reported that coal exports have increased, with China battling its energy crisis.
Another crucial product that North Korea exports to China is TEXTILES. As per the same 2017 OEC report, North Korea exports around 584 million dollars worth of textiles, which include non-knit coats, suits, and activewear. This has been a major controversy in North Korea, as a lot of those textiles are re-exported all over the world with a “Made in China” tag. North Korea also gets to export other products such as ferrosilicon, potato flour, and components for electric watches.
Most of the trade between North Korea and China mainly happens through the north-eastern port of Dandong in China. This is separated from the closest North Korean city of Sinuiju by the narrow Yalu river.
If there is one product that North Korea exports on a relatively worldwide level, it is their renowned seafood products such as pine mushrooms, mollusks, and processed fish. The North Korean government has worldwide restaurants dedicated to it in parts of the world, like Vietnam, the Netherlands, etc.
North Korea also trades with India, with the trade deficit being predominantly in India’s favour. India mainly exports its petroleum products and other goods worth 60 million dollars, while it imports automobile parts and silver parts worth 36 million dollars. Even though India has condemned the nuclear weapon program of North Korea, especially its missile launch in 2019, it hasn’t participated in any United Nations sanctions.
According to Anwita Basu, The Economic Intelligence Unit’s lead analyst for Indonesia, the Philippines, and North Korea, “the North Korean economy is basically run by its arms deals”.
North Korea has established connections between various countries in the African Union due to the strong bond they shared in the name of socialism in the 1960s. Another factor that aids them here is only seven countries on the African continent have participated in the United Nations sanctions.
A South African think tank the name the Institute for Security Studies(ISS), the value of annual trade activities between the African States and North Korea has amounted to 216.5 million dollars. This is mainly because Pyongyang has built arms factories in the Democratic Republic of the Congo, Ethiopia, Madagascar, and Uganda. It has also been contracted to construct military sites in Namibia. North Korea has also sold ballistic missile lines for Egypt and Libya.
It has also been widely speculated that North Korea has also partnered with Iran on nuclear weapons development. A UN 2016 report also stated that North Korea has sold weapons to the middle eastern countries as well.
Cybercrime
Cybercrime in North Korea
It has been reported by multiple sources that there are 6000 hackers based in Pyongyang. Found as maths prodigies in various government-run schools across North Korea, they are trained by the North Korean government in the basics of hacking, from a beginner to advanced levels. Through this knowledge, the hackers steal a lot of money stored worldwide and then they have to contribute the money to the government. A confidential UN report in 2019 reported that the hackers had stolen about 2 billion dollars to fund their country’s nuclear weapon programme.
It is widely believed that North Korean hackers were responsible for the WannaCry ransomware attack that targeted the National Health Service program of the United Kingdom and other governmental-run organizations across the world. They were also reportedly behind 81 million dollars in cyber theft of funds from Bangladesh’s account at the New York Federal Reserve in 2016. This is just not limited to one domain. As per the 2022 Crypto Crime report from Chainlysis, the hackers have also stolen nearly 400 million dollars worth of cryptocurrency last year.
North Korean hackers were also responsible for hacking into Sony Pictures and releasing its confidential data worldwide. This was primarily because Sony Pictures had made a comedy picture about assassinating their leader Kim Jong-un by the name of The Interview.
Picture by Sony Pictures assassinating Kim Jong-un by the name of The Interview
Slave Labour
Between 50,000 and 100,000 North Korean citizens have been sent abroad especially to countries like China and Russia, to work in various labour industries like mining, construction, and textiles. Working conditions are harsh and salaries are virtually non-existent, with constant surveillance ensuring that labourers do not get any leeway. Money is exchanged for the excruciating work, but it goes straight to the pockets of the North Korean government.
Robert Manning, a senior fellow at the North Atlantic Council(the principal decision-making body of the NATO), has said that these funds can also help North Korea by buying the support of various leaders at various international organizations. He also believes the revenue earned through the form of “slave labour” described above is one of its most crucial reasons.
Robert Manning has also said that North Korea has a huge cartel in its own “illicit drug industry”, especially narcotics such as crystal meth. As sanctions continue to ramp up, this is one illegal path that North Korea may push further.
Conclusion
Thus, in this article, we have documented the various sources through which North Korea earns its revenue and how it compares to its geographical neighbours. With the various sanctions looming on its head due to its nuclear weapon programme and the fact that North Korea is not some stranger to famines (it faced one huge famine in the year 1994), we all must meet across a solution in which the basic North Korean does not struggle for basic amenities in roti, kapda, and makaan regardless of the ideology of the government.
FAQs
What is the major source of income for North Korea?
Major sources of income that adds to the economy of North Korea are:
Weapons Trade
Cybercrime
Slave Labour
Drugs
How does North Korea run its economy?
North Korea has an isolated and tightly controlled command economy.
What is the poverty rate in North Korea?
North Korea has a Poverty rate of 60%.
What is North Korea’s main export?
North Korea mainly exports coal.
Which country is the major partner for export-import in North Korea?
China is the biggest market for export-import in North Korea.
