Can India Boost Exports and Capitalize on UK FTA Amid US Tariff Challenges?
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Synopsis
With US tariffs tightening their grip on MSMEs, India has a golden opportunity to diversify exports and leverage trade agreements with the UK and potentially the EU. Discover how this can reshape the export landscape amidst challenges.
Key Takeaways
- US tariffs pose a significant challenge to Indian MSMEs.
- India can enhance exports to alternative markets.
- Leveraging the UK trade agreement can boost competitiveness.
- Textiles and gems sectors are particularly vulnerable.
- Pharmaceuticals are currently exempt from tariffs.
New Delhi, Aug 20 (NationPress) In response to the challenges posed by US tariffs on Micro, Small and Medium Enterprises (MSMEs), India has the opportunity to expand exports to alternative markets and take advantage of the benefits from the recently finalized trade agreement with the UK and the potential deal with the European Union (EU), as highlighted in a report released on Wednesday.
The new higher tariffs imposed by the US are expected to significantly impact MSMEs, which contribute to nearly 45 percent of India's total exports, according to findings by Crisil Intelligence.
Currently, the US enforces a 25 percent tariff on Indian goods, with an additional 25 percent tariff set to commence on August 27, resulting in a cumulative tariff of a substantial 50 percent on Indian exports.
The report indicates that this extra ad valorem tariff, if enacted, will notably affect specific sectors and will be closely monitored.
According to Elizabeth Master, Associate Director at Crisil Intelligence, "The India-UK free trade agreement is advantageous for MSMEs involved in export-centric sectors such as textiles, gems and jewellery, seafood, leather, and pharmaceuticals."
While these sectors make up less than 3 percent of imports to the UK, with the exception of readymade garments (which account for 6 percent), this deal is set to enhance the competitiveness of MSMEs against countries like Bangladesh, Cambodia, and Turkey, providing a competitive edge over China and Vietnam in the readymade garments sector, Master added.
The textiles, gems and jewellery, and seafood industries, which collectively make up 25 percent of India's overall exports to the US, are expected to feel the greatest impact, given that MSMEs hold a share of over 70 percent in these sectors. The chemicals sector, where MSMEs have a 40 percent market share, is also likely to be adversely affected.
Pushan Sharma, Director at Crisil Intelligence, noted that the partial absorption of increased costs due to higher tariffs will pressure MSMEs, tightening their already narrow margins and presenting a significant challenge to their competitiveness.
In the gems and jewellery sector, MSMEs in Surat, which control over 80 percent of diamond exports, will experience the shock of these tariffs.
For auto components, the impact is anticipated to be slightly negative as the US represents just 3.5 percent of India's total production.
However, certain sectors remain unaffected for now; for example, pharmaceutical products, which constitute 12 percent of exports to the US, are currently exempt from tariffs.
In the steel sector, US tariffs are expected to have a minimal impact on MSMEs, as they primarily engage in re-rolling and produce long products, while the US mainly imports flat products from India. Additionally, the US only accounts for 1 percent of India's steel exports, as noted in the report.
Point of View
It is crucial to recognize that while the US tariffs pose significant challenges for Indian MSMEs, the opportunities presented by alternative markets and trade agreements can pave the way for resilience and growth. It is essential for India to strategically leverage these agreements to enhance its export capabilities while addressing the immediate impacts of these tariffs, ensuring that the national economy remains robust.
NationPress
20/08/2025
Frequently Asked Questions
What is the impact of US tariffs on Indian MSMEs?
US tariffs significantly affect Indian MSMEs, which constitute about 45% of total exports. The increased tariff rates can squeeze profit margins and hinder competitiveness.
How can India mitigate the impact of US tariffs?
India can increase exports to other countries and leverage trade agreements, such as the one with the UK, to enhance its MSME competitiveness.
Which sectors are most affected by the US tariffs?
The textiles, gems and jewellery, seafood, and chemicals sectors are likely to be most impacted, with MSMEs holding substantial market shares in these areas.
Are there any sectors unaffected by US tariffs?
Yes, sectors like pharmaceuticals are currently exempt from US tariffs, providing some relief for MSMEs engaged in this industry.
What opportunities exist for Indian exports despite tariffs?
India can explore alternative markets and capitalize on trade agreements with countries like the UK and potential deals with the EU to boost exports.
