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Informist, Tuesday, Apr. 1, 2025

 

By Krity Ambey

 

NEW DELHI – India and the US concluded the latest round of talks for the proposed Bilateral Trade Agreement on Saturday, but uncertainty remains regarding Washington's threat to impose reciprocal tariffs. If the US imposes reciprocal tariffs on Wednesday, India may get a sneak peek at the potential impact on its exports when the Indian government releases March trade data.

 

US-based importers hesitated to place orders in March due to a lack of clarity on duties after Washington's impending tariffs took effect. Their concern was that consignments arriving in the US after Wednesday would incur higher tariffs, a government official explained. According to the official, India's merchandise exports for 2024-25 (Apr-Mar) could have significantly surpassed last year's figures if not for this latest setback.

 

But India's exports for March are expected to exceed the monthly average of $35.97 billion for the year, as exporters typically step up their game in the last month of the fiscal year, according to Federation of Indian Export Organisations' Director General Ajay Sahai. Merchandise exports could be close to $40 billion in March, Sahai said.

 

Even with $42 billion in exports in March, the total goods exports for the year would be flat against that in the previous year. India's merchandise exports growth in Apr-Feb at $395.63 billion, was almost flat from the corresponding period a year ago. Goods exports in FY24 had contracted 3% — for the first time since the pandemic year of FY21 — to $437.07 billion.  

 

Till February, India's exports to the US remained largely unaffected by the looming reciprocal tariffs. With a share of 19% in total exports, outbound shipments to the US grew in nine out of eleven months of the year. India's exports to the US were $76.38 billion in Apr-Feb, up 9.1% on year.

 

CLOUDY CONTOURS

There is significant vagueness on the extra duty the US will levy on Indian exports after Wednesday. US President Donald Trump has announced that his government will impose reciprocal duties based on both tariff and non-tariff barriers faced by American exports. Even focusing solely on tariff barriers, it's unclear whether the duties will be calculated based on each country's weighted average tariff or if the US government will impose them sector by sector.

 

If the US imposes a single tariff on all Indian products to negate the overall differential in weighted average tariff, which is simpler for the US administration to execute, Indian goods may face an extra duty of at least 5% – New Delhi imposes a weighted average tariff of 7.7% on US goods compared with Washington's 2.8% duty on Indian goods. This could lead to a loss of $6 billion in exports for India, according to a report by Emkay Global.

 

But if the US government negates the tariff differential for each sector, it may pose a threat to Indian exports worth over $15 billion from sectors where the tariff differential is in double digits — 32.4% for farm products, 23.1% for auto components, and 13.3% for gem & jewellery – according to a report by the Global Trade Research Initiative. Other sectors that may see significant risk include, electronic goods, and pharmaceuticals, the GTRI report said. 

 

For non-tariff barriers, the US government may assume an additional delta over and above the differential duty for each product and accordingly impose the reciprocal tariff, said Gautam Khattar, principal at Price Waterhouse&Co LLP. This approach would be the most complex to execute, Khattar said.

 

The office of the US Trade Representative released a comprehensive report on Monday that listed non-tariff barriers imposed by each nation, including that by India. The report did not specify if the reciprocal tariffs would be based on its findings.

 

India and the rest of the world will get clarity only late Wednesday night when Washington implements the tariffs. In the meantime, the Indian government is exploring every avenue – from proposed trade agreement discussions to tariff rationalisation - to safeguard Indian exports.

 

Commerce Minister Piyush Goyal visited Washington last month to discuss the trade deal, followed by the visit of a team of US officials led by Assistant Trade Representative for South and Central Asia Brendan Lynch to India. The Indian government has already slashed duties on high-end motorcycles and bourbon whiskey and has expedited its customs duty rationalisation exercise.

 

Indian exporters are hopeful that the US will delay imposing reciprocal tariffs on India by a few months, at least until the fall of 2025 when the first tranche of the proposed trade pact is expected to be launched. Meanwhile, President Trump said on Monday that the reciprocal tariffs would apply to all countries without exception, but also insisted that his government would be "much more generous".  End

 

US$1 = INR 85.47

 

Edited by Saji George Titus

 

 

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