Impact of US Tariffs on Indian Exports
The United States is set to impose a 25% tariff on Indian goods starting August 7. Exporters in India are urging the government to expedite the implementation of the ₹2,250 crore Export Promotion Mission announced in the 2025-26 Budget, which has yet to be implemented.
Concerns and Government Response
- Exporters are worried about a potential hit from the tariffs and an unspecified penalty related to India's energy purchases from Russia.
- The government is designing schemes under the Export Promotion Mission that will focus on trade finance and market accessibility, compliant with WTO norms.
- Approval of these schemes is pending at the Expenditure Finance Committee and the Cabinet.
- Providing a direct subsidy is challenging due to the risk of 'moral hazard’ and potential WTO violations.
Trade Agreement Delays and Sectoral Impact
- Higher tariffs are a result of the failure to finalize an interim trade agreement with the US by the August 1 deadline.
- Sectors predicted to be worst-hit include textiles, auto components, tyres, chemicals, agrochemicals, and cut and polished diamonds.
Exporters' Concerns
- There are fears of mass layoffs, especially in manufacturing units, if tariffs lead to selling below cost.
- Specific sector statistics: The US accounts for 27% of India's auto component exports and 36% of cut and polished diamond exports.
- Agrochemical and tyre exports are also vulnerable to tariff disadvantages compared to regional competitors.
India-US Trade Relations
- The US remains India’s biggest trade partner, with exports to the US totaling $86.5 billion in FY24, which is an 11.6% increase from the previous year.
- However, imports were $45.7 billion, resulting in a trade surplus of $40.8 billion.
Future Projections
- According to the Global Trade Research Initiative (GTRI), India’s goods exports may drop by 30%, from $86.5 billion in FY25 to $60.6 billion in FY26.
