Steep US tariffs set to hit Indian exports

NEW DELHI:

Indian exporters are bracing for a sharp decline in orders from the United States after trade talks collapsed and Washington confirmed that steep new tariffs on the South Asian nation's goods would take effect from Wednesday, escalating tension between the strategic partners.

An additional 25 per cent duty announced by President Donald Trump, confirmed in a notice by the Homeland Security Department, takes total tariffs to as much as 50pc, among Washington's highest, in retaliation for New Delhi's increased buying of Russian oil.

"The government has no hope for any immediate relief or delay in US tariffs," said a commerce ministry official, who sought anonymity for lack of authorisation to speak to the media.

Exporters hit by tariffs would receive financial assistance and be encouraged to diversify to alternative markets such as China, Latin America and the Middle East, the official added.

However, the commerce ministry did not immediately respond to an email seeking comment on the latest notice.

The new duties will apply from 12:01am EDT on Wednesday (9:31am IST), it showed. Exceptions are shipments in transit, humanitarian aid and items under reciprocal trade programmes.

The Indian rupee fell to a three-week closing low of 87.68 against the dollar, despite recovering some ground after suspected central bank intervention to support it.

The benchmark equity indexes closed down 1pc each, for their worst sessions in three months.

Wednesday's tariff move follows five rounds of failed talks, during which Indian officials had signalled optimism that tariffs could be capped at 15pc.

Officials on both sides blamed political misjudgment and missed signals for the breakdown in talks between the world's biggest and fifth-largest economies, whose two-way trade is worth more than $190 billion.

This month, Bessent said India was profiteering from its sharply increased imports, making up 42pc of total oil purchases, versus less than 1pc before the war, in a shift Washington has called unacceptable.

India has issued no directive yet on oil purchases from Russia. Companies will continue to buy oil on the basis of economics, three refining sources said.

Exporters seek aid

Exporter groups estimate hikes could affect nearly 55pc of India's merchandise exports worth $87bn to the US, while benefiting competitors such as Bangladesh, China and Vietnam.

The table shows the sectors that get affected mainly from US tariffs on India and the total potential impact on trade numbers

"The US customers have already stopped new orders," said Pankaj Chadha, president of the Engineering Exports Promotion Council. "With these additional tariffs, the exports could come down by 20-30pc from September onward."

The government has promised financial aid such as greater subsidies on bank loans and support for diversification in the event of financial losses, Chadha added.

"However, exporters see limited scope for diversifying to other markets or selling in the domestic market."

The commerce ministry official said the government had identified nearly 50 countries to which India could boost exports, particularly items such as textiles, food processed items, leather goods and marine products.

India's diamond industry exports have already hit a two-decade low on weak Chinese demand, and the higher tariffs now threaten to cut it off from its largest market, taking nearly a third of $28.5bn annual shipments of gems and jewellery.

Broader economic impact

Private sector analysts warn that a sustained 50pc tariff could weigh on India's economy and corporate profits, prompting the steepest earnings downgrades in Asia, even if proposed domestic tax cuts partly cushion the blow.

Last week, Capital Economics said full US tariffs would chip 0.8 percentage points from India's economic growth both this year and the next.

Foreign Minister S. Jaishankar also said trade talks continued and Washington's concern over Russian oil purchases was not equally applied to other major buyers such as China and the European Union.

The US could be a major energy supplier to India, an official of its New Delhi embassy said on Tuesday.

The US is committed to collaborating with India on exports of high-quality products and services to help achieve energy security and economic growth, the official added.

Prime Minister Narendra Modi has vowed not to compromise the interests of Indian farmers, even if it entails a heavy price. Modi is also moving to burnish ties with China, planning his first visit there in seven years at the end of the month.