EAC-PM chief warns US tariffs may weigh on jobs more than GDP growth

EAC-PM S Mahendra Dev said that exporters should focus on diversification of markets, while also pushing domestic consumption

As India faces 50 per cent tariffs on its exports to the United States (US), S Mahendra Dev, Chairman of the Economic Advisory Council to the Prime Minister (EAC-PM), said the impact would be felt more on employment and less on overall growth.

 

In an interview with Moneycontrol, he said that since India is largely dependent on domestic consumption, with exports accounting for only about 20 per cent of the gross domestic product, the economy is less vulnerable to external shocks. He added that while US tariffs could weigh on near-term growth, the bigger concern lies in potential job losses, particularly for micro, small and medium enterprises (MSMEs) in labour-intensive sectors such as textiles, garments, gems and jewellery, and leather goods.

 

He further stated that the government is in touch with stakeholders to cushion the adverse impact on small businesses and is pursuing counterbalancing measures, including Goods and Services Tax (GST) reforms, to support domestic consumption. 

 

Earlier this month, the Centre proposed replacing the current GST slabs with 5 per cent and 18 per cent, to push domestic consumption.

 

Dev noted that while global uncertainties such as geopolitical tensions and tariffs pose headwinds, domestic factors are providing support. These include low inflation, recent repo rate and cash reserve ratio cuts by the Reserve Bank of India (RBI), an expected good monsoon, trade diversion to India, and budget measures like higher capital expenditure and tax reductions.

 

"These tailwinds may raise both rural and urban demand by raising investment, consumption and some push to exports. Hopefully, the twin-demand approach of diversifying markets and meeting domestic demand will help small labour-intensive businesses," he said.

 

The road ahead

 

On being asked about the approach ahead, Dev said that exporters should focus on the diversification of export markets.

 

He added India is working towards free trade agreements with the European Union and other partners, but stressed the need for a sharper export push in labour-intensive sectors. He pointed out that Asia remains the largest market for such goods, while Latin America and Africa also offer significant demand opportunities.

 

Amid uncertainty, the Centre, along with states and impacted sectors, have been focusing on diversification of exports. According to a recent report by PTI, the Centre is working on measures to boost India's exports, including targeting 50 countries in regions such as West Asia and Africa.

 

Similarly, a senior official of the Uttar Pradesh (UP) government also told the Business Standard that the state is scouting for fresh export markets across continents to cushion its tariff-hit industries. The new markets on UP’s trade radar include Latin America, Europe, West Asia, Africa, and South-East Asia.

 

Indian auto component makers also have huge export opportunities in Latin American countries such as Colombia and Brazil, as well as in emerging markets like Africa, according to an EY-Parthenon report.

 

Domestic push

 

Dev also added that exporters can also cater to the domestic demand as India has a huge market for several goods.

 

"Government is also encouraging self-reliance for many of the goods and services. Therefore, exporters can follow the twin-demand approach of diversifying external markets and cater to the domestic demand," he said, as quoted by Moneycontrol.

 

Recently, Prime Minister Narendra Modi also urged the citizens and businesses to support Indian-made goods, saying, “All of us should follow the mantra of buying only 'Made in India' goods."

 

"Businessmen should keep a big board outside their establishments, saying they sell only 'swadeshi' (Indian goods)," he said, during a rally in Ahmedabad.