Direct impact of US tariffs on Indian sectors will largely be neutral: Report

New Delhi, April 4 (IANS) The expected direct impact of US reciprocal tariffs would vary in nature for the sectors in India, with no impact on pharmaceuticals since they are exempt from reciprocal tariffs for now, a report said on Friday.

The impact is expected to be largely neutral for electronics, textiles, agricultural products, chemicals, and automobiles and parts.

At the same time, it would be negative for gems and jewellery, according to the report by CareEdge Ratings.

During FY24, India’s aggregate merchandise exports to the US stood at $77.5 billion compared to imports from the US at $42.2 billion.

Till now, the US had been charging an average tariff of 3.50 per cent on imports of goods from India, which is now being increased uniformly to 27 per cent in the form of reciprocal tariff.

"Reciprocal tariff imposed by US on other nations who are India’s major competitors in most of the above sectors is higher than us -- Vietnam at 46 per cent, Bangladesh at 37 per cent, China at 34 per cent, Taiwan at 32 per cent, Indonesia at 32 per cent and Pakistan at 29 per cent, which augurs well for key export sectors of India," the report said.

In electronics, higher reciprocal tariffs on China would mean a neutral impact for India’s electronics exports, it said.

Apart from India, the other major textile exporters to the US are China, Vietnam, Bangladesh, and Turkey.

Except for Turkey, which has a 10 per cent reciprocal tariff, other nations face reciprocal tariffs higher than 26 per cent, which means the impact of reciprocal tariffs on India’s textile sector would be limited.

Additionally, the majority of India’s exports are cotton-based garments and home textile products. India’s self-sufficiency in cotton production should enable it to largely pass on higher reciprocal tariffs, said the report.

India has one of the highest numbers of US FDA-approved manufacturing facilities, which primarily caters to the generic medicine requirements of the US.

"This is crucial for meeting the healthcare needs of its population cost-effectively. Although the pharmaceutical sector is currently exempted from the purview of reciprocal tariffs by the US, with no immediate impact, even if tariffs are imposed, the sector should be well-positioned to pass them on significantly due to its inherent competitive strengths," said the report.

India’s overall exports of agriculture and allied products to the US are not very high.

Although, reciprocal tariff of 26 per cent is imposed vis-a-vis prevailing weighted average tariff of 5.3 per cent, the reciprocal tariff on the other major competing nations (Vietnam, Indonesia, Thailand, Pakistan) on some key agri-exports (sea food, basmati rice) is on the higher side which is expected to negate the impact of tariff imposed by US broadly.

"However, Ecuador, being the second-largest exporter of shrimp to the US, it could result in competitive pricing pressure for Indian shrimp exporters, as the tariff imposed on Ecuador is lower at 10 per cent," the report noted.

Overall exports of auto and auto components to the US are very low, and accordingly, the impact of reciprocal tariff is expected to be minimal for the sector as a whole.

Additionally, auto component exports to the US are crucial for OEMs in the US, and it may take time for them to replace these with other low-cost, approved vendors from other nations, thereby improving India's ability to mitigate the impact of higher tariffs in the short to medium term, said the report.

However, the imposition of high reciprocal tariffs by the US on other competing nations raises the possibility of increased dumping by those nations in India, as well as in other export markets.

--IANS

na/vd