Navigating US tariffs: Strategic responses for building resilience

The US decision to impose an additional 25 per cent tariff on Indian goods—over and above the standard Most Favoured Nation (MFN) rates—is likely to make India’s exports less competitive in the US market. Estimates suggest approximately 30 per cent of Indian exports, valued at $87 billion, and spanning sectors such as gems and jewellery, engineering, auto parts, textiles and apparel, leather, handicrafts and carpets will be affected. This move is expected to have a detrimental impact on production and employment across these industries in India.

 

While one hopes for a more positive outcome to the negotiations that are likely to continue later this month, a strong need exists for us to build on alternative strategies that support growth, investments and employment. Hence, while the higher tariffs for US markets are a big economic challenge, they also create opportunities for innovative solutions that may take India on a higher growth trajectory.

 

 

Export-market diversification: One clear strategy to offset the potential loss of trade earnings from the US market is to diversify India’s export destinations. In this context, there are significant opportunities to step up our exports to alternative markets. Africa, for instance, is emerging as a fast-growing destination for India’s pharmaceuticals, textiles, digital services, electrical and auto products, as well as agricultural and clean tech goods. Already at about $83 billion, India and Africa have set an ambitious goal of scaling bilateral trade to $200 billion by 2030.

 

At the same time, expanding exports of gems & jewellery, as well as textiles & garments to the energy-rich economies in the Middle East and Central Asia presents another viable avenue. Trade agreements and Free Trade Agreements (FTAs) also offer scope for broadening India’s export reach.

 

Trade deals: The recently concluded FTA with the UK, along with the ongoing negotiations with EU – which are expected to conclude soon – offer significant opportunities to expand market access for Indian products. Early finalisation of FTAs with Canada and Australia, both major export destinations, would further help diversify India’s trade portfolio and reduce overdependence on a limited number of markets. Additionally, expediting FTA with Gulf Cooperation Council (GCC) and pursuing a renegotiation of the existing FTA with ASEAN would provide a much-needed boost to India’s trade strategy.

 

Regional economic and tech integration: Another low-hanging fruit is strengthening regional trade ties and regulatory standards within the grouping of Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC). Working with neighbourhood countries of Bhutan, Bangladesh, Nepal, Myanmar, Sri Lanka, and Thailand, would give a fillip to agricultural exports, besides to pharmaceuticals, textiles and garments, engineering goods, electronics, etc.

 

In this context, India’s leadership in scaling up the Unified Payments Interface (UPI) for cross-border financial settlements could be a game changer for regional trade. When coupled with enhanced regional connectivity projects, infrastructure development would be well-positioned to emerge as a key growth engine for the region – catalysing a virtuous cycle of investments, economic activity, employment and consumption across the region.

 

Strength of services sector: Importantly, services are less vulnerable to tariffs and India remains a major global exporter in this domain - currently ranked seventh worldwide. IT and IT-enabled services constitute an estimated 50 per cent of India’s services exports, followed by business services, medical and education tourism, transport, and logistics related services.

 

To sustain and enhance this momentum, the development of high-value exports by Indian IT firms, particularly in areas such as Artificial Intelligence (AI), Machine Learning, cybersecurity, cloud-based solutions, and other innovation-driven software development, is imperative.

 

This is also an opportune time to strengthen exports of telemedicine and online education through edtech platforms, promote greater medical tourism, and attract international visitors especially from Southeast Asia, Japan, S Korea, China, to culturally important destinations such as the Buddhist circuit.

 

Value-addition in GCCs: An important offshoot of services sector exports is the growing contribution of Global Capability Centres (GCCs), which could play a key role in mitigating the adverse impact of higher tariffs. India has emerged as a global hub for GCCs, which are offshore units established by multinational corporations to carry out strategic business functions in a cost-effective and efficient manner. These functions range from R&D and product development to innovation in technologies and components.

 

Attracted by India’s young, English-speaking, and highly skilled workforce, more than 1,900 GCCs are currently operating in the country. Continued focus on enhancing value addition within these centres—particularly in IT-led innovation and cutting-edge areas such as AI—could contribute over $100 billion worth of innovative products and services by 2030.

 

Global supply chains: Attracting greater investment into global supply chains remains a critical strategy to counter potential trade losses in the US market. This requires further regulatory easing under the Ease of Doing Business (EODB) framework, especially through targeted partnerships with industrialized Indian states.

 

Strategic collaboration with member countries of the Indo-Pacific Economic Framework (IPEF) on supply chain alignment—particularly by engaging with the top 50 global multinationals—will also be essential. Integrating with global supply chains will help to build a domestic ecosystem of high-value manufacturing and exports, thereby giving India an edge in global markets.

 

Overview: In conclusion, while the outcome of our negotiations with US is still evolving, it seems to be a defining moment for the country to expand its trade markets, focus on the FTAs to establish alternative yet stable markets for our export products, strengthen regional trade and connectivity – both financial and infrastructural.

 

Besides, it is an opportune time to incentivise corporates to move up the value chain, and build domestic capacity for higher value-added goods, whether they be in electronics, pharma, biotech, fintech, AI-driven products, or green tech-based products. Continued growth in the services sector, along with policy reforms to attract global supply chains, will be critical components of the blueprint for transforming the Indian economy toward a higher-growth, higher-employment trajectory.

 

The author, Sumita Dawra, is former Secretary to the Govt of India, Ministry of Labour & Employment.  (Disclaimer: These are the personal opinions of the writer. They do not reflect the views of www.business-standard.com or the Business Standard newspaper)