With US President Donald Trump doubling tariffs on India to 50%, the government has begun reaching out to industry with a four-pronged strategy to limit the damage to manufacturing, exports and jobs. The real problem that India will face post these tariffs is competitiveness, because all other Asian countries and competing manufacturing nations face tariffs in the range of 19-30% for products that form a large chunk of India’s exports to the US.
While officials are exploring long-term policy measures to improve India’s export competitiveness, industry executives maintain that immediate support, especially in the form of subsidies, is crucial to protect sectors already under pressure. Industry leaders are, therefore, urging the government to go beyond policy brainstorming and engage directly with the companies most affected by tariffs.
Details on the Government’s four broad strategies
According to sources, the government is currently weighing four broad ideas: diversifying export markets, modifying the export basket, focusing on boosting domestic demand, and accelerating ease of doing business reforms. While appreciating the broad policy direction, industry executives have pointed out that these do not address the short-term competitiveness gap created by the new tariff regime.
“The danger is in applying the right solutions to the wrong problem,” said one senior executive. “Unless we move quickly to support the hardest-hit exporters, the damage could be permanent.”
For instance, the first idea under discussion is market diversification, which is basically reducing reliance on the US by pushing exports to Europe, West Asia, and Africa. However, industry executives said that this strategy is unlikely to deliver quick results. The reason being that China, which has been facing high tariffs from the US since April, has already flooded several of these markets with heavily subsidised products, particularly in textiles and garments. Indian exporters are finding it difficult to compete with Chinese goods that are often priced below even China’s cost of production. Bangladesh and other Asian countries also enjoy a cost edge, making market entry even harder for Indian companies.
The second option being explored is a shift in the export basket. Industry sources said that while this could improve resilience in the long run, it’s a time-consuming and resource-intensive shift. Export patterns are slow to evolve, and require not only global demand alignment but also domestic capability across manufacturing, raw material supply chains, and workforce skills. India’s export profile has remained broadly the same for over a decade, with engineering goods, petroleum, pharmaceuticals, electronics, textiles, chemicals, and gems and jewellery accounting for the bulk of outbound trade. Smartphones have seen a notable rise in recent years, driven largely by Apple’s arrival and the production-linked incentive (PLI) scheme. But that change took years and a major global player entering the market, conditions that cannot be quickly replicated across other sectors.
The third approach is to boost the domestic market to absorb some of the hit from lost exports. While strengthening local demand is a sound goal, industry insiders warn that it should not be treated as a substitute for export competitiveness. There is also a risk that companies will start demanding protection in the form of higher import tariffs and non-tariff barriers. That, in turn, could prompt retaliatory measures from trade partners. Further, raising domestic consumption would require significant moves such as cutting goods and services tax (GST) on consumer goods, measures that could hurt government revenues in the short term.
The fourth and most common response from the government is to double down on ease of doing business (EoDB) reforms. While this is certainly required, industry executives say that this cannot be the core solution to a crisis of competitiveness. Even if all such reforms were implemented quickly, India would only be catching up to where China and Vietnam were a decade ago. Moreover, EoDB measures such as faster clearances and simplified compliance improve efficiency but do little to reduce the 5-25% cost gap that Indian exporters now face due to the new tariffs.
India Inc.’s reaction to the Trump Tariff
They pointed out that quite in contrast, China is actively supporting its exporters through a mix of direct and indirect subsidies such as free land, near-zero cost capital, subsidised infrastructure, and hidden incentives. Members of India Inc in sectors facing stiff competition pointed out that without similar support, they risk losing key export markets permanently. Several sectors, particularly textiles, garments, and electronics, are seen as especially vulnerable.
There is also concern that the US may expand its tariff coverage further. A pending Section 232 investigation includes proposals for 100% tariffs on semiconductors unless companies commit to manufacturing in the US. If approved, India’s electronics exports, currently tariff-free, could be hit next.
The larger view within the industry is that without targeted interventions like subsidies for vulnerable sectors along the lines of the merchandise exports from India scheme (MEIS), India could see parts of its supply chain shift to other countries, with long-term consequences for jobs and manufacturing.