MUMBAI (Reuters) - India's $32 billion gems and jewellery industry is bracing for a sharp fall in exports as hefty U.S. tariffs will impede overseas sales to its biggest market, industry officials said.

The United States slapped a 26% reciprocal tariff on India, dealing a blow to the South Asian country's hopes of relief under President Donald Trump's global trade policy.

"The tariff is higher than expected," Colin Shah, managing director of Kama Jewelry, one of India's leading diamond jewellery manufacturers, told Reuters. "It is quite severe and will affect exports."

India is the world's largest hub for diamond cutting and polishing, handling nine out of every 10 diamonds processed globally.

The United States accounts for nearly $10 billion or 30.4% of India's annual gems and jewellery exports of $32 billion.

Gems and jewellery are India's third-largest export to the United States, after engineering and electronic goods, and the industry employs millions in the South Asian country.

The sector has already been hit in recent months by weak demand from China and exports dropped 14.5% to $32.3 billion in the 2023-24 fiscal year (April-March).

A long-term bilateral trade deal with the United States could soften help the blow, Shah said.

India and the United States are in talks to clinch an early trade deal.

"We're are pretty hopeful that India could land a trade deal with the U.S. in the next few months. So, we just need to push through this tough phase for a little while longer," said Shaunak Parikh, vice chairman of the Gem and Jewellery Export Promotion Council (GJEPC).