The recent imposition of reciprocal tariffs by the United States on Indian goods is expected to have a largely neutral impact across several key sectors, according to a report by CareEdge Ratings. While some sectors may feel minor effects, most are likely to remain resilient due to India’s competitive positioning and favorable global trade dynamics.
Pharmaceuticals Exempt from Tariffs
The pharmaceutical sector will remain unaffected, as it is currently exempt from the new US tariffs. India, with one of the highest numbers of US FDA-approved manufacturing facilities, primarily caters to America’s generic drug market. The report emphasized that even if the government introduces tariffs in the future, the sector should confidently pass on cost increases due to its strong competitive advantages.
Neutral Impact for Electronics, Textiles, Automobiles, Chemicals, and Agriculture CareEdge expects the direct impact on sectors such as electronics, textiles, chemicals, agricultural products, and automobiles to be largely neutral. For electronics, the higher reciprocal tariffs imposed on China – India’s key competitor – create a level playing field for Indian exports.
In the textile sector, India’s major competitors like China, Vietnam, and Bangladesh face reciprocal tariffs above 26%. In contrast, India’s exports are primarily cotton-based. India is largely self-reliant in cotton production. This allows the textile industry to absorb and potentially pass on additional cost burdens with minimal disruption.
India Gains Competitive Edge over Key Export Rivals
The report highlights that India stands to benefit from relatively lower reciprocal tariffs compared to its major export competitors. The US has imposed tariffs of 46% on Vietnam and 37% on Bangladesh. China faces a 34% tariff, while Taiwan and Indonesia each face 32%. India, in comparison, faces a uniform 27% tariff. This favourable differential augurs well for India’s key export sectors, positioning them better against global competition.
Potential Risks: Dumping by Other Nations
India may weather the tariff storm better than expected. However, CareEdge cautions about a potential side effect: increased dumping by other countries. Many nations now face higher tariffs in the US. As a result, they may redirect surplus exports to India or other markets, potentially pressuring domestic industries.
Trade Snapshot
In FY24, India exported $77.5 billion worth of goods to the US, while importing goods worth $42.2 billion. As reported by punjabkesari.com, previously, the average US tariff on Indian goods stood at 3.5%. With the new reciprocal tariff regime, this has now risen to 27%.
