50% US tariff on India takes effect Wednesday; exporters seek urgent relief

The US administration early Tuesday pressed through with its plan to impose a 50 per cent tariff on Indian goods with the Department of Homeland Security notifying that an additional 25 per cent levy, linked to India’s oil purchases from Russia, would take effect from August 27, 9.30 am IST. 

This levy, on top of the 25 per cent reciprocal tariff implemented from August 7, not only marks a virtual death knell for several sectors’ export prospects in India’s largest market, accounting for a fifth of its outbound shipments in 2024-25, but also poses the most pressing external risk for India’s near-term growth and capital flows trajectory, according to experts. 

A senior government official told Business Standard that trade with the US is largely not feasible with the steep 50 per cent tariff. Exporters will need to explore new markets as the US is no longer an option for many, he stressed.

 

Even as textiles and apparel makers in Tirupur, Noida, and Surat have already halted production, according to India’s apex exporters’ body, trade think tank Global Trade Research Initiative (GTRI) flagged that as much as 66 per cent or two-thirds of India’s exports to the US will be hit by the 50 per cent US tariff.

 

Another 4 per cent of India’s $91.2 billion exports to the US through 2024, largely auto components, face a 25 per cent tariff, while 30 per cent of exports, including pharmaceuticals and electronics, remain duty-free.

 

Apparel, textiles, gems & jewellery, shrimp, carpets, and furniture, are among the sectors that will be worst hit as the 50 per cent tariff renders them uncompetitive. “Exports from these sectors could plunge 70 per cent, dropping to $18.6 billion, causing an overall 43 per cent decline in shipments to the U.S. and endangering hundreds of thousands of jobs,” GTRI said in a report.

 

The textiles sector “is losing ground to lower cost rivals from Vietnam and Bangladesh, while for the seafood especially shrimps, as the US market absorbs nearly 40 per cent of Indian seafood exports and the tariff increase risks stockpile losses, disrupted supply chains, and farmer distress,” the Federation of Indian Export Organisations (FIEO) said in a statement.

 

Other labour-intensive sectors, including leather, ceramics, chemicals, handicrafts, carpets face a sharp erosion of competitiveness, particularly against European, South East and Mexican producers. Delays, order cancellations, and negated cost advantages loom large for these sectors, cautioned FIEO President SC Ralhan. 

 

Exporters said the impact extends beyond export losses to broader issues such as cash flows. The bigger concern, they said, is ensuring factories continue working and workers’ wages remain unaffected. Exporters will also reach out to the Reserve Bank of India (RBI) for flagging concerns about existing loan arrangements.

 

Ralhan mooted a moratorium on payment of principal and interest for loans up to a period of one year. “Additionally, an automatic enhancement of the existing limit by 30 per cent along with collateral free lending on the lines of the Emergency Credit Linked Guarantee Scheme (ECLGS) may also be pushed as these will help in addressing the stress of these companies without much burden on the exchequer,” he emphasised.

 

Low cost of credit and easy availability of credit with emphasis on MSMEs with the support from banks and financial institutions with special direction in this regard both from the government and the RBI is needed, he said. The FIEO chief also sought immediate government support to include push for interest subvention schemes and export credit support to sustain working capital and liquidity.

 

Fresh support to exporters through various schemes under a proposed Export Promotion Mission may get the finance ministry’s approval in the next one or two weeks, said an official. India is also expanding its focus on the top 50 countries with 90 per cent share of exports.

 

Mithileshwar Thakur, secretary general of the Apparel Export Promotion Council (AEPC), said the additional 25 per cent tariff has, in a way, closed the US market for the Indian apparel industry, given the tariff differential of 30-31 per cent vis-a-vis major competing countries. The industry expects some urgent relief in the form of fiscal support from the government to sustain and survive in the US market till some favourable terms of trade are reached through bilateral trade agreement with the US. This is crucial as it is not easy to regain a foothold once buyers move away, Thakur said.

 

“This is a strategic shock that threatens India’s long-standing foothold in US labour-intensive markets, risks mass unemployment in export hubs and could weaken India’s participation in global value chains. Competitors like China, Vietnam, Mexico, Turkey, and even Pakistan, Nepal, Guatemala, and Kenya stand to gain, potentially locking India out of key markets even after tariffs are rolled back,” the GTRI report concluded.

 

These tariffs raise the effective cost of Indian goods in the US market and inject fresh uncertainty into corporate planning cycles, panelists at a virtual conference hosted by S&P Global Ratings signaled on Tuesday. The panel included Crisil Ratings chief economist Dharmakirti Joshi, S&P Global director Neel Gopalakrishnan, and Geeta Chugh, S&P Global’s managing director for financial institutions ratings. 

Joshi noted that India’s domestic drivers such as robust consumption, softer oil prices, a good monsoon, a high share of services exports, prudent fiscal management, and fresh monetary easing, are cushioning India against global shocks. “But when global shocks collide with domestic constraints, the drag amplifies,” he warned, referring to delayed capex decisions, higher risk premia for exporters, and commodity price effects. 

The US, as India’s largest trading partner, remains a key channel for external shocks and mitigation efforts must combine external hedging through trade agreements with reforms to boost private investment, logistics, and labour participation. 

The White House had first announced the additional 25 per cent tariff for Indian goods on 6 August, while giving a three-week window to negotiate. The US has argued that the road to peace in Ukraine runs through New Delhi, indicating that India ceasing Russian oil imports would help cut off funding for Russia’s offensive in Ukraine.

 

New Delhi had, however, called the imposition of the levies ‘unfair’, ‘unjust’ and has maintained that Indian companies will continue buying oil from wherever they get the ‘best deal’. 

 

(With inputs from Himanshi Bhardwaj)