India Develops Action Plans to Mitigate Impact of US Tariffs

In response to the recent imposition of steep tariffs by the United States, the Indian Commerce Ministry is developing a series of short, medium, and long-term strategies aimed at supporting exporters. The tariffs, which have reached as high as 50 percent, significantly impact Indian goods entering the US market, prompting urgent measures from Indian authorities.

The government is considering adjustments to policies governing special economic zones (SEZs) while operationalising E-commerce export hubs. These hubs are designed to facilitate simplified return logistics, enhance inter-state movement, and streamline Goods and Services Tax (GST) refunds. An official stated that the inventory model for e-commerce exports will enable third-party entities to manage compliance and logistics, thereby reducing the operational burden on Micro, Small, and Medium Enterprises (MSMEs).

Immediate liquidity relief for exporters is a priority in the government’s plan. The objectives include maintaining order levels and employment within vulnerable sectors, building resilience in supply chains, and leveraging existing trade agreements to explore new market opportunities. The official emphasized the importance of non-financial support measures, such as branding initiatives and reducing compliance costs.

In the short term, immediate actions may include easing liquidity constraints, preventing insolvencies, and providing greater flexibility for SEZ units. Additionally, targeted import substitution efforts will be promoted. As the government looks to the medium term, it plans to intensify outreach regarding India’s Free Trade Agreements (FTAs), aiming to enhance competitiveness through improved buyer-seller connections.

The Commerce Ministry is also set to conduct large-scale buyer-seller meetings both domestically and internationally. Exporter delegations will be sent to markets such as Australia for apparel, the UAE for gems, and the UK for leather to strengthen direct relationships with potential buyers.

India has established trade agreements with over a dozen nations and regions, including Australia, the UAE, Japan, Korea, and the ASEAN bloc. The government aims to build a resilient, diversified, and globally competitive export base in the long term, anchored in the Export Promotion Mission (EPM), SEZ reforms, and supply chain initiatives.

Anticipating challenges from the tariff shocks, the government recognizes the potential for delayed payments, stretched receivable cycles, and cancelled orders. To mitigate these risks, a proposed GST rationalisation could stimulate domestic demand, creating additional opportunities for exporters.

The Ministry has also devised a phased export diversification framework, responding directly to the US tariffs. This strategy outlines critical Harmonised System (HS) codes, clusters, and alternative markets. It targets two main objectives: increasing exports to existing markets like the EU, UK, UAE, Japan, Canada, and Australia, while also venturing into new markets across Latin America, Africa, Eastern Europe, and East Asia.

In concluding remarks, the official asserted, “The Government of India is proactively responding with a timely, well-calibrated, and comprehensive multi-tiered strategy designed not only to safeguard Indian exporters but also to strengthen our long-term competitiveness in global markets.” The implications of the US tariffs could potentially affect almost USD 49 billion worth of exports, which represents over 55 percent of India’s shipments to the US market.

While India’s overall trade exposure to the US is approximately 18-20 percent of its merchandise exports, certain sectors exhibit significant dependence. For example, 60 percent of carpet exports, 50 percent of made-ups, 30 percent of gems and jewellery, and 40 percent of apparel are directed towards the US market. The Commerce Ministry’s multifaceted approach aims to cushion the impact of these tariffs while fostering a robust export environment.