Exports to the US declined sharply between May-September as buyers delayed new orders in the face of the imminent tariff escalation, but November saw an unexpected 22% rise in shipments to the world’s largest economy. Has the adverse impact of the additional 50% tariffs been quickly nullified by India’s exporters? Were exporters in some sectors conventionally enjoying very high margins, so that even such hefty duties could not completely erode their pricing power?
A review of key export sectors reveals that the rise in last month’s shipments to the US may be a result of a combination of factors: a quick clearing of backlogs, a tweaking of the product mix to less-affected or hard-to-substitute products, and a strategy to hold on to long-time customers even while facing squeezed margins, or minor losses.
Analysts and sources from the trading community say exporters might have pinned their hopes on the chances of the resolution of the tariff issue in a month or two, as they chose to sell products at wafer thin margins. However, November performance may not be sustainable, unless the tariffs are brought down under the proposed bilateral trade agreement with the US quickly enough.
Exempt Outperformers
A heightened effort by the exports to accelerate shipments of products that are exempt from the extra US tariffs like electronics and petroleum products also boosted the headline export figures. The falling rupee has helped exporters to stay afloat, and withstand the depletion of margins to an extent.
Exporters of a few products including marine items, plastics and gems & jewellery have also been remarkably agile in diversifying into new markets to compensate for loss of the US market share.
Survival at Zero Profit
“Current exports to the US are largely survival-driven. US shipments are mostly at zero profit or losses, with exporters absorbing deep discounts to retain buyers,” convenor of the Coimbatore-based Indian Texpreneurs Federation (ITF) Prabhu D said.
According to Director General of Federation of Indian Export Organisations (FIEO) Ajay Sahai, the growth in exports to the US witnessed in November was partly due to a sharp jump in smartphone exports and petroleum products. “Other key sectors remain impacted by the high tariffs,” he said. Mobile phone exports to the US bounced to $ 1.8 billion in November from $ 1.5 billion in October. “The impact of the depreciations would have offered relief of 3-5% on margins,” Sahai said.
The country’s overall textiles and apparel exports saw a 9.4% year-on-year growth in November to $ 2,856 million. Exporters from the Tirupur textile hub caution against “over-reading the monthly export figure” for November. The bump could largely be due to a backlog of US orders and is unlikely to sustain beyond the next month, they said, while the US export figures are still being computed.
As for seafood items, deliveries under earlier orders from the US are still being executed, incurring losses. There was a rise in demand due to the Christmas season. However, the order pipeline for the period after January 15 from the US buyers has completely dried up, and this would hit marine exporters hard. “There are no fresh orders from the US coming in while there has been some diversion of exports to the European Union and Russia,” KN Raghavan, secretary general, Seafood Exporters Association of India, said.
Among other important sectors, plastics had seen a 33% drop in exports to the US in October after contracting 23% in September, the first month where full 50% tariff ws in force. However, in November, plastics exports were up 9.6% on year to $ 1.5 billion, Executive Director at Plastics Export Promotion Council Sribash Dasmohapatra said.
Exports of gems and jewellery in November present a mixed bag. While the overall exports stood at $2,511 million, up 19.6% on year, exports from April to November remained rather flat on year at $18,867 million.
Novemer data for cut-and-polished diamonds (CPD), along with lab-grown diamonds (LGD), marked increases of 38% and 10.65%, respectively. However, April to November data reveal a year-on-year decrease in exports, with CPD exports dropping 8.76% and LGD exports decreasing by 11.05% from the previous period.
A prominent player in the industry who wished to remain anonymous attributed the sudden spike in November exports to the festive season. “Diwali was celebrated in mid-October this year, compared to last year’s celebration, which occurred in November. This is why many shipments were held until November, resulting in the sharp export increase.”
While diamond margins remain squeezed at 3.5-4% in the US from FY23’s peak of 5.5%, studded gold jewellery has emerged as a popular option amongst exporters.
Vipul Shah, managing director at Asian Star Jewellery, said: “Many exporters are turning towards studded jewellery to remain afloat in the US market. Gold is imported from the US itself, and we carry out value addition, such as finishing and setting stones.” Margins for studded jewellery products are in the range of 6-8%, according to several exporters. Shah also highlighted how LGDs have disrupted the CPD market, although both export categories noted healthy growth in November.
Alkesh Shah of Goldstar Jewellery said LGDs have grown to constitute about 30-35% of overall exports. “The demand for LGDs in countries like the US has grown significantly and eaten into the share of CPD. Gold and studded jewellery has also picked up pace among exporters.”
Four months after the US imposed a steep 50% tariff, Tiruppur, India’s largest knitwear export hub, is still reeling under mounting financial stress, with exporters hit by falling volumes, squeezed margins. This is even as the country’s overall textiles and apparel exports saw a 9.4% year-on-year growth in November to US$ 2,855.8 million.
Prabhu said exports to the US are under tariff-led stress, despite the headline numbers. September–October data shows a 20% plus contraction in knitted apparel and home textiles, with declining volumes and market share, indicating structural damage, he pointed out.
Kumar Duraiswamy, Joint Secretary, Tiruppur Exporters Association says it is not easy to shift to alternative markets. “The demand bowl is the same, but there are more hands.”Duraiswamy’s Eastern Global Clothing exports knitted garments including baby and infant wear, women’s clothing, joggers and licensed apparel for major brands like Disney with the US accounting for 30% of his business, with the rest in Europe and the Gulf.
Siva Subramaniam, Founder and Chairman of Raft Garments has not seen a business impact of this scale in his company’s 50-year history. The innerwear exporter derives about 50% of revenue from the US market. The company had received an order for two million units to be supplied by February and had shipped about half a million units before Diwali. “When the first 25% tariff was announced, buyers asked us to absorb 16%, which we managed. But when the tariff was raised to 50%, they wanted us to take 25%. That was simply not possible,” said Subramaniam.
“Even European buyers are squeezing margins due to the current situation in the US,” Duraiswamy said.
(Tomorrow: Quick market diversification by exporters in many sectors)