Amid Tariff War, Can India Pull Off A Miracle?

Reciprocal tariffs slapped on China, Vietnam, Bangladesh and Thailand, among others, are significantly higher. This may somewhat cushion India's exports sector. 

China has been slapped with a 34 per cent tariff rate. For Vietnam, it is even higher at 46 per cent, and for Bangladesh, it is 37 per cent. A blanket tariff of 10 per cent has been additionally slapped on all countries which will come into effect from April 5, while the differentiated tariff structure will kick in from midnight on April 9.

However, the tariff on Brazil and Chile is set at 10 per cent, significantly lower than India. For Philippines, it is 17 per cent.  

The Commerce Ministry issued a statement saying that it is “carefully examining the implications of the various measures/announcements” made by the Donald Trump administration.  

Even as government officials held back-to-back meetings to assess the impact and implications of the tariff, analysts said India may not be severely hit. In the recalibrated global trade dynamics, India, if it plays its cards well, may actually manage to gain the US market in some sectors, particularly apparel and clothing.

The Trade Promotion Council of India (TPCI) said that for India, the impact of the reciprocal tariff will be limited. “For most of the competing countries, tariff has been kept very high, which keeps India better off than many other emerging economies,” TPCI Chairman Mohit Singla said.

“India needs to spin this into an opportunity. Though the 26 per cent tariff is steep, the US may have to increase its imports from India, as it will have to fill in the supply gap. And with higher tariffs on other countries that supply goods to Washington, Indian goods may prove to be more competitive,” Ashwani Mahajan, national co-convener of Swadeshi Jagaran Manch (SJM) told The Secretariat.

Mahajan also pointed out that the sweeping tariffs are against global trade rules like the General Agreement on Tariffs and Trade (GATT), which sought to reduce trade barriers and WTO norms.

“Though India may not be impacted, we need to understand that the global trade and tariff norms were concluded only after weighing all pros and cons, and that the US had then played a dominant role in the discussions,” he said.  

Textiles & Apparel

About 98 per cent of the retail clothing sold in the US is imported.

According to a US import data, Bangladesh, Mexico, India, Vietnam and China were the top textile suppliers to the US in 2024. “With higher tariffs on most other economies that have traditionally supplied apparel and garments to the US, shipment from India may increase,” commerce ministry officials said.

Globally, India’s share in textiles and apparel trade is 3.9 per cent. The US will take time to increase production to meet its domestic demand. It may, therefore, need to increase imports from India to meet the demand in its domestic market.

Gems & Jewellery

The country’s gems and jewellery sector is concerned. The tariff imposition could significantly affect India’s US$ 11.5 billion gems and jewellery exports to the US, which is currently its largest market. “There could be a ripple effect across pricing, demand and trade relationships,” said Ashok Minawala, who was associated with the All India Gems and Jewellery Trade Federation, and is the promoter and founder of Urja Lab Jewels and Danabhai Jewellers.

A few analysts however said that the sector could benefit since India, one of the key exporters of gems and jewellery, may benefi from relatively lower taiff compared to other exporting nations that include China and Hong Kong. 

For the Indian gems and jewellery sector, the US is one of the key export markets. India’s gems and jewellery exports stood at US$ 9.9 billion in FY24. 

Similarly, exports of engineering goods to the US could drop by US$ 4-5 billion in the first year. The exact impact on engineering exports to the US cannot be determined at present, since it will depend on the ability of the American market to absorb these duties, the Engineering Export Promotion Council (EEPC) said.

"Going forward, Indian engineering exporters need to diversify export markets to minimise the impact of the higher US tariff," Pankaj Chadha, partner and CEO, Jyoti Steel Industries, and EEPC chairman, said.

Impact On Economic Growth

Though the exact impact of the tariff policy will be clear over the next few weeks, it could have a bearing on India's economic growth. The Reserve Bank of India (RBI) will be holding its monetary policy committee (MPC) meeting between April 7 and 9. It is widely expected that the central bank would reduce key policy rates to support growth.

It has already taken measures to inject liquidity in the market.

Meanwhile, New Delhi is expected to press the pedal to give finality to the proposed bilateral trade agreement (BTA) with the USA.

“Such an agreement could establish a structured framework for resolving tariff challenges, reducing the likelihood of unilateral trade measures or retaliatory tariffs,” S C Ralhan, president, Federation of Indian Export Organisations (FIEO) said.