US Tariffs Hit Indian Exports, But Economy Can Absorb Shock Through Domestic Demand: GTRI

The think tank suggested long-term solutions include improving product quality and reducing manufacturing costs to enhance export competitiveness.

GTRI hopes that, in a few months, India will largely mitigate the adverse impact of US tariffs.

Source : Freepik

Ajay Srivastava, founder of the Global Trade Research Initiative (GTRI), noted that India can offset the loss of US trade to some extent through increased domestic consumption. The 50 per cent Trump tariffs on India come into effect starting today, posing challenges for the country's US-oriented exporters.

India broadly has two options to offset some of the US challenges, Srivastava, founder of trade think tank GTRI, noted. "We have two broad options. One, the bigger option is that local markets. Our exports are just 20 per cent of Indian economy and Indian market is very big. It absorbs 80 per cent of Indian production and there is scope for further absorption of this because Indian economy is growing at 6 to 7 per cent annually," Srivastava told ANI.

"Domestic consumption can "happily absorb" some of the shocks," he said. The second "great option" is to search for other countries to divert some of the exports that India cannot export to the US.

"And for this, the government is making an effort to expedite FTAs with the European Union. And we already conclude signed an agreement with the UK. So efforts are on to implement that quickly. Few more FTAs like with Peru and other countries are on the line," he stated. GTRI hopes that, in a few months, India will largely mitigate the adverse impact of US tariffs.

Labour-intensive sectors, such as diamonds, gems, jewellery, textiles, garments, and shrimp, will be significantly impacted due to their high dependency on the US market and increased competition from countries with lower tariffs, he said. Srivastava said that other competitor countries may replace most of Indian exports.

India's nearest competitors in the US market for textiles and garments are China, Bangladesh, and Vietnam. All these countries face relatively lower tariffs than India. "Most of the Indian products will be phased out from the US market until some tariffs are brought down," he noted.

However, there is a silver lining.The share of small and medium-sized exporters is distinct but relatively low in the US. Developed markets require stringent certifications before making a purchase.

"All the small or medium-sized factories can afford the price of those certifications, and they generally export to low-end markets. Very few medium or small-scale industries in the garment or textile sectors export to the US," Srivastava said. Asked whether he sees any scope for negotiation now with the US, he responded in affirmation.

"Negotiations are not terminated. They have just been paused. So there is always a negotiation. Both countries are open. No country has said, neither India nor the US, that they are terminating the negotiations. So we hope that soon they may resume," he said.

Finally, the think tank suggested long-term solutions include improving product quality and reducing manufacturing costs to enhance export competitiveness.

(This report has been published as part of the auto-generated syndicate wire feed. Apart from the headline, no editing has been done in the copy by ABP Live.)

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