Whalesbook
US Initiates Duty Refund Process
The United States has started refunding reciprocal duties on Indian imports, a process that began April 20 with the launch of the Consolidated Administration and Processing of Entries (CAPE) portal. This follows a U.S. Supreme Court ruling that invalidated tariffs originally imposed by the Trump administration, which could have reached up to 50% on some goods.
While the estimated refund pool for Indian exports totals $12 billion, the benefit for Indian businesses is complicated by the refund structure. Only U.S. importers and authorized brokers are eligible to file claims, leaving Indian exporters without a direct legal channel to recover these funds. This compels exporters to negotiate with their U.S. buyers for rebate-sharing agreements or revised pricing to recoup costs they may have absorbed. Such negotiations depend heavily on buyer goodwill and established contractual terms, creating uncertainty for Indian entities about realizing these refunds.
India's Shifting Trade Position
The current trade environment differs from the peak tariff period. Following a trade framework agreement in February 2026, India's reciprocal tariff rate on many U.S. goods dropped to about 18%. This makes India competitive against regional peers like Vietnam and Bangladesh, which face tariffs ranging from 19% to 30%. This stable tariff regime marks a significant improvement from escalated rates that had impacted India's export competitiveness and led to sector declines.
Economic Performance and Sectoral Effects
India's overall export performance in fiscal year 2025-26 showed moderate growth, driven by a strong services sector, while merchandise trade remained subdued, contributing to a widening trade deficit. The U.S. market's influence is evident, as India's trade surplus with the U.S. narrowed due to rising imports and only marginal export growth.
Sectors most affected by the former reciprocal tariffs are now navigating the refund process. Textiles and apparel accounted for approximately $4 billion of the refund pool, showing modest growth in FY26. Gems and jewellery, linked to about $2 billion, had previously experienced a significant export slump due to the tariffs. Engineering goods and chemicals are also significant beneficiaries, with estimated allocations of $4 billion and $2 billion respectively. Seafood exports to the U.S. experienced a value decline amid these tariffs, though this was partly offset by growth in other markets. Notably, China has overtaken the U.S. as India's largest trading partner in FY25-26.
Exporter Recovery Challenges
The primary risk for Indian exporters lies in the indirect nature of the refund mechanism. Without direct legal recourse, recovery of previously absorbed tariff costs or discounts is contingent on the discretionary goodwill of U.S. importers. This creates a power imbalance, as importers control the claim process. Contractual terms agreed upon during the high tariff period will dictate the extent to which exporters can negotiate for a share of the refunds. Many exporters offered substantial discounts to maintain market access, and recovering these losses is uncertain. The protracted refund process also challenges working capital management, with potential disputes over refund allocation complicating recovery efforts.
Outlook for Trade Certainty
Analysts see the recent trade agreement, which reduced tariffs to a more competitive 18%, as a factor lowering trade-related uncertainty and providing an incremental boost to India's GDP growth. The stable trade environment is expected to foster greater confidence for long-term investment and strategic planning. While India's overall economic growth forecast remains robust, the success of the duty refund mechanism in translating into tangible benefits for exporters will depend on navigating the complex negotiation terrain with U.S. importers.