Whalesbook
India's Export Resilience Tested by US Tariffs
India's export sector is demonstrating surprising strength, with overall exports rising 19% in November. This performance has occurred even as exporters face significant tariff challenges, particularly in the United States. While headline numbers look encouraging, industry experts caution that the current momentum is partly sustained by Indian suppliers and global buyers absorbing increased costs. This situation raises concerns about long-term sustainability.
The Tariff Disadvantage
Sivaramakrishnan Ganapathi, Vice Chairman and Managing Director of Gokaldas Exports, points out that labor-intensive sectors like apparel and textiles are especially vulnerable. India faces a substantial tariff disadvantage in the US market compared to competing Asian nations, with a 30% difference in rates. This means India's tariffs can be as high as 50% while competitors face around 20%.
While exports haven't been materially hit yet, Ganapathi warns that 2026 could be a critical point if these tariff issues persist. He notes that losing the US market, which accounts for over a third of India's apparel exports, is a significant concern. The current resilience is attributed to exporters sharing the tariff burden with their customers, creating a temporary 'holding pattern'.
Absorbing Costs: A Temporary Fix?
Ajay Sahai, Director General and CEO of the Federation of Indian Export Organisations, confirms that approximately 55% of India's exports to the US are impacted by tariffs. Many exporters continue to supply to US buyers, hoping to retain them even if it means absorbing higher costs. This is a risky strategy, as brands and suppliers are currently in a lose-lose situation.
Sahai suggests that the encouraging 22.6% growth in overall exports to the US in November might be driven by specific categories like smartphones, while the situation in apparel and textiles remains less clear. Some brands with deep profits may be able to manage the shared cost burden for now.
Diversification: The Only Way Forward
Despite the current resilience, both leaders emphasize the urgent need for market and product diversification. Ganapathi states that diversification is the mantra in today's volatile world, as tariff issues could return even if resolved temporarily. However, finding alternative markets that can match the scale and concentration of buyers found in the US is a significant challenge.
Sahai highlights that Indian exporters are indeed diversifying. Strong demand is coming from West Asia, Africa, Latin America, and ASEAN. Sectors like engineering, pharmaceuticals, and value-added manufacturing are showing robust growth. For instance, infrastructure investment in emerging economies is boosting demand for engineering goods, and India is emerging as an alternative supply chain for pharmaceuticals.
Future Outlook
While the short-term export picture remains strong, driven by broader global demand and improved competitiveness in specific sectors, the medium-to-long term outlook depends heavily on successful diversification. The current practice of absorbing tariff costs cannot be sustained indefinitely. The challenge lies in developing new markets and products that can compensate for potential losses from tariff-affected regions. The success of this strategy will determine India's ability to maintain its export momentum.
Impact Rating: 8/10
Difficult Terms Explained
- Tariff disadvantage: Paying higher taxes or duties on imported goods compared to other countries, making exports less competitive.
- Diversification: Spreading business activities across different markets or product types to reduce reliance on a single area.
- Labor-intensive sectors: Industries that require a large amount of manual labor relative to capital investment, such as apparel and textiles.
- Duty-free access: Permission to import goods into a country without paying any customs duties or taxes.
- Inflection point: A moment when a significant change in trend or behavior occurs.
- Penal tariff: An additional, often punitive, tax imposed on imports, usually as a trade barrier.
- Delta: The difference between two values; in this context, the difference in tariff rates.
- Disaggregated number: Detailed statistics broken down by specific categories or segments, rather than overall figures.
- Aberration: A deviation from what is normal, usual, or expected.
- Logistics costs: Expenses associated with transporting goods from one place to another, including shipping, warehousing, and handling.
- ASEAN: Association of Southeast Asian Nations, a regional organization promoting intergovernmental cooperation and economic integration among its ten member states.
- Value-added manufacturing: The process of transforming raw materials or components into finished goods that have a higher market value.