Centre May Absorb Part Of Duty Burden On US-Bound Shipments

(MENAFN- Live Mint)

The Centre may partially compensate exporters for their US shipments under Donald Trump's punitive tariff regime, three people aware of the discussions said.

With the dawn of steep tariffs, Indian exporters are compelled to reduce prices to stay competitive, which makes a direct hit on their business. The government is now looking to bear 10-15% of the price cuts to help exporters stay in the game, the people cited above said on the condition of anonymity.

The relief, limited to US-bound consignments, will remain in force until the issue is settled through trade talks, which have been delayed but remain under discussion.

The proposal is being coordinated between the ministries of finance and commerce to address the mounting pressure on manufacturers and exporters, particularly those in labour-intensive sectors, which are struggling to execute confirmed orders.

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The Centre may support some of the affected sectors with 10-15% for the price sacrifice they make to keep their US business going, one of the two people cited above said, though the sectors had asked for even higher support. This aid will help exporters continue to execute their orders and keep the manufacturing process going, thepersonadded.

Duty burden

Given that US importers must pay tariffs on goods imported from India, they are asking their Indian suppliers to reduce prices to compensate for the tariff burden, exporters have said. However, doing so would be an additional burden to the Indian exporter.

The matter was discussed in separate meetings held on Thursday with finance minister Nirmala Sitharaman and commerce minister Piyush Goyal, where stakeholders highlighted the challenges in meeting deadlines for the upcoming spring season.

The government has assured that there is no need to worry about the possible impact of the US tariffs on Indian goods exported to the US, stating the issue is being closely looked at.

The relief package is being explored for labour-intensive goods such as textiles, gems and jewellery, engineering goods, leather and footwear, seafood, among others, the people cited earlier said.

Help assured

“The finance minister sounded positive, stressing that exporters will not be left to face the storm on their own. While she didn't reveal what specific measures the government is taking, she assured that the government is seized of the matter and will step in to provide support," said Pankaj Chadha, chairman, Engineering Export Promotion Council.

“The 50% tariff undeniably dents cost competitiveness, but it also pushes Indian manufacturers to think beyond pricing. For us, the way forward is twofold - strengthening technology and design leadership so clients see value in performance, and building diversified global linkages that reduce overdependence on any one market," said Sarvadnya Kulkarni, CEO of General Instruments Consortium, an engineering company.

Queries sent to the spokespersons of the Prime Minister's Office, and the ministries of finance and commerce remained unanswered.

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According to a report by Global Trade Research Initiative, the damage could be substantial if the tariff remains in place for long. Once competitors gain ground in the US market, it will be very difficult for Indian exporters to reclaim lost space, and New Delhi will need to step up its engagement with Washington, it stated. Countries such as China, Vietnam, Mexico, Turkey, and even Pakistan, Nepal, Guatemala, and Kenya stand to benefit from the US action, potentially locking India out of key markets even after the tariffs are rolled back.

Regional pacts

As reported by Mint on 21 August, New Delhi is also exploring the possibility of joining China-led Regional Comprehensive Economic Partnership to mitigate potential losses arising from supply chain disruptions amid strained trade relations with the US.

On Wednesday, Peter Navarro, a top aide to US president Donald Trump, characterized the Russia-Ukraine conflict as "Modi's war," arguing that India's continued purchase of discounted Russian oil is funding Moscow's military efforts. He also criticized India for its high tariffs and for "getting in bed with authoritarians" by aligning with Russia and China.

“India, you are getting in bed with authoritarians. China invaded Aksai Chin and all your territory. They are not your friends. And Russia? Come on!" Navarro told Bloomberg Television in an interview.

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According to a second person, the government has been apprised of the fact that diversification will take time and that the textile sector is not receiving orders for summer apparel.“If the situation continues, labour-intensive industries will come under immense financial pressure, which may result in layoffs," this person said.

According to GTRI estimates, the new tariffs could slash India's exports to the US by 43% to $49.6 billion in FY26, down from $86.5 billion in the previous year. However, India's overall exports may still rise to $839.9 billion, supported by a 10% increase in services exports to $421.9 billion. Economic growth, meanwhile, is projected to slow from 6.5% to 5.6%.

Trade pressures

As per the commerce ministry data, the US remains India's largest trading partner, with Indian goods exports to the country rising 11.6% in FY25-from $77.52 billion in FY24 to $86.51 billion. Imports from the US also grew, though at a slower pace of 7.42%, climbing from $42.20 billion to $45.33 billion in the fiscal year that ended on March 31.

According to a report by Crisil Ratings, US President Donald Trump's decision to double tariffs on imports from India threatens to take the sheen off the country's diamond polishing industry, which is concentrated in Prime Minister Narendra Modi's home state of Gujarat.

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India's natural diamond polishing industry is facing its worst year in nearly two decades, with revenues projected to fall by about 22% to $12.5 billion in FY26 from $16 billion in the previous year, the report released on Thursday said.

The projected decline follows Trump's decision to impose a punitive 25% duty on India for buying Russian oil, in addition to an earlier tariff of the same level on Indian goods entering the US. The two measures together amount to a steep 50% tariff on polished diamond exports, compounding the industry's challenges after a 40% fall in revenue over the past three years due to weaker prices, slowing demand in the US and China, and the rapid growth of lab-grown diamonds.

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