TO PREVENT loss of market share following the high 50% US tariffs, the government is ready to extend a series of mitigating measures such as subsidised interest rates, collateral-free loans and credit guarantee, to labour-intensive exporters. Exporters also want government support in facilitating access to big domestic buyers — both public like the Railways, and private like Reliance Retail and Aditya Birla Group.
In the first half of this year, and just weeks before the 25% reciprocal US tariffs kicked-in on August 7, India managed a 12% growth in shipments of textiles and apparels to the US. This was, however, far lower than the export growth clocked by competitors Vietnam, Bangladesh, Indonesia and Cambodia.
With the additional 25% secondary tariffs for Russian oil purchases becoming effective August 27, there is little doubt the comparative advantage has reversed sharply for India, impacting shipments of leather and shrimps, apart from textiles and apparel.
In New Delhi, policy makers had multiple rounds of deliberations with affected exporters, and a constant refrain in these meetings is: Shore up market share, whatever it takes… Losing market share will make it really difficult to recover it back as and when the tariff situation normalises.
The message has been distilled down by government officials, who have tried to impress this upon exporters in their meetings. This exhortation, of course, has been alongside an assurance that the government is formulating a broad-based plan to mitigate, at least in part, the loss of competitiveness of exporters.
This assertion is borne out of the implicit calculation within sections of the Central government that the 25 per cent secondary tariffs on account of Russian oil imports would be drawn down at some point, sooner than later. But whenever that happens, the loss of market share would be difficult to recover as buyers and importers in the US would have already factored in strategies that look beyond India.
Among the likely policy measures are several pandemic era schemes that were earlier targeted at addressing a demand shock. This includes a broad support package aimed at providing liquidity through collateral-free loans and subsidised interest rates, and likely credit guarantees offered on loans overdue by up to 3-months for small exporters. The reintroduction of a provision modelled on an earlier interest equalisation scheme, as demanded by the industry, is also being considered.
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The challenge for the government is to ensure that measures formulated for relief to exporters to tide over the impact of the American tariff, is not specific to the US. These need to be general measures, since an incentive aimed at one particular market, such as the US, could lead to the imposition of a corresponding countervailing duty by Washington – something that has happened in the past.
The industry has been asking to restore the Interest Equalisation scheme (IES), which has been one of the most effective instruments to remove cost disability of Indian exports. This scheme – which provided the much-needed competitiveness to exports, particularly to the MSMEs, since the interest costs in India are much higher than in competitors’ countries – was inexplicably wound up by the Central government last year. It was a relatively small scheme, with some Rs 2,500 crore annual expenditure available mostly to the MSMEs.
Also, some of the bigger exporters have started talks with big domestic retailers such as Reliance Retails and the Aditya Birla Group for an entry into the domestic market, at least to ride out the secondary tariffs. Exporters have also asked the government for facilitating access to big domestic buyers, including the Indian Railways and procurement by various government departments and undertakings.
With Trump’s new tariffs kicking in, trade experts estimate that the value of India’s merchandise exports to the US could drop substantially in 2025-26 (FY26) from FY25 levels. According to an analysis by the Delhi-based think-tank Global Trade Research Initiative, India’s product exports to the US could fall to $49.6 billion in FY26 from nearly $87 billion in the last financial year, as two-thirds of the India’s US exports by value will be hit by 50 per cent tariffs, taking effective tariff rates to over 60 per cent in a few product categories.
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Around 30 per cent of India’s exports to the US—valued at $27.6 billion in FY25—will remain duty free as product categories like pharmaceuticals, electronics, and petroleum products have been exempt from Trump’s tariffs, while 4 per cent of the exports—mainly auto parts—will face a 25 per cent tariff rate.
The impact of the tariffs could be broad-based, as the US accounts for 20 per cent of India’s merchandise exports and slightly less than 2 per cent of its overall GDP. Product categories that are likely to be hit the hardest by high US tariffs include textiles and apparel, gems and jewellery, shrimps, machinery and mechanical appliances, some metals (steel, aluminium, copper), organic chemicals, agriculture and processed foods, leather and footwear, handicrafts, furniture, and carpets. The US accounts for 48 per cent of revenue for India’s shrimp exporters, which means that the marine exports sector would also see a sharp decline in volumes.