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Key Points

The US is imposing a new 50% tariff on Indian goods, which will severely impact key export sectors. Micro, small, and medium enterprises in textiles, chemicals, and gems are most vulnerable as they dominate these industries. The Tirupur garment cluster and Surat's diamond polishers face particular risk due to their high export reliance on the US market. Crisil suggests exploring other export destinations and leveraging trade agreements to mitigate the damage.

Key Points: US Tariffs Hit India MSME Textile Chemical Exports Hardest Crisil Says

  • US tariffs jump to 50% on Indian goods effective from August 27
  • Textiles and gems sectors forming 25% of US exports face severe impact
  • Tirupur garment cluster with 30% US exports will be severely hit
  • Indian MSMEs lose ground to Bangladesh and Vietnam with lower tariffs
3 min read

India's MSME exports in textiles, chemicals to be hit most by US tariffs as they form major part of shipments to US: Crisil

New 50% US tariffs threaten Indian MSMEs in textiles, chemicals, and gems. Crisil report warns of squeezed margins and lost competitiveness in key export sectors.

"Partial absorption of the increased product prices due to higher tariffs will put pressure on MSMEs, squeeze their already-slim margins - Pushan Sharma, Crisil Intelligence"

New Delhi, August 20

Micro, small and medium enterprises (MSMEs) in sectors such as textiles, diamonds and chemicals, which together account for nearly 45 per cent of India's total exports, are likely to be the most affected by the imposition of higher tariffs by the United States, according to a report by Crisil Intelligence.

The US currently levies an ad valorem duty of 25 per cent on Indian goods, but has announced an additional 25 per cent tariff that will take effect from August 27, raising the total duty to 50 per cent.

The report noted that this increase will significantly affect Indian exporters, especially MSMEs, which dominate key export sectors.

The textiles, gems and jewellery, and seafood industries, which together make up about 25 per cent of India's total exports to the US, are likely to be hit the hardest.

MSMEs have more than 70 per cent share in these sectors. In the chemicals sector, where MSMEs account for about 40 per cent share, the higher tariffs will also hurt exporters.

Pushan Sharma, Director, Crisil Intelligence said, "Partial absorption of the increased product prices due to higher tariffs will put pressure on MSMEs, squeeze their already-slim margins and pose a material challenge to their competitiveness. For instance, those into readymade garments (RMG) are expected to lose ground in the US as the tariff increases to 61 per cent, including 50 per cent additional ad valorem duty, compared with peers in Bangladesh and Vietnam tariffed at 31 per cent. The Tirupur cluster, which accounts for over 30 per cent of India's RMG exports, will be severely impacted as approx. 30 per cent of its exports are to the US."

In the gems and jewellery sector, Surat's diamond polishers, who dominate the country's exports with over 80 per cent share, will also be severely affected.

Diamonds form over half of India's total gems and jewellery exports, with the US being a major consumer, accounting for nearly a third of shipments. Similarly, seafood MSMEs will struggle to compete with Ecuador, which enjoys a lower 15 per cent tariff and is geographically closer to the US.

The chemical industry also faces stiff competition from Japan and South Korea, which face lower tariffs. Auto component MSMEs supplying gearbox and transmission equipment may also feel the heat as the US has a significant approx. 40 per cent exposure in this segment, though overall auto component exports to the US remain limited at 3.5 per cent of India's production.

Overall, the US tariffs will affect about USD 19 billion worth of exports across textiles, chemicals, seafood and auto components.

To mitigate the impact, Crisil mentioned that India could boost exports to other destinations and leverage the India-UK free trade agreement.

- ANI

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Reader Comments

P
Priya S
Why are we always at the receiving end of these tariff wars? Our MSMEs work on razor-thin margins as it is. The 61% tariff on garments compared to 31% for Bangladesh/Vietnam is completely unfair 😔
A
Aditya G
Time to diversify our export markets instead of depending so much on the US. We should focus more on European and Middle Eastern markets. The India-UK FTA mentioned could be a good starting point.
S
Sarah B
As someone working in the Surat diamond industry, this is devastating news. Nearly one-third of our exports go to the US. Many small polishing units might have to shut down if this continues.
M
Michael C
While I understand the concern, maybe this is an opportunity for Indian MSMEs to focus on quality over quantity and move up the value chain. Cheaper isn't always better in the long run.
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Nisha Z
Our government should negotiate better trade deals. Why are we always on the back foot? Other countries manage to get favorable terms while our exporters struggle with 50% tariffs. Time for stronger diplomacy!

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