India's robust domestic economy is providing its negotiators with significant leverage in ongoing trade talks with the United States, allowing for a more patient approach despite facing American tariffs as high as 50%. The economic impact on exports has been less severe than initially feared, strengthening New Delhi's position at the bargaining table.
Key Takeaways
- India's strong domestic economy, with 7% growth in the last quarter, is cushioning the impact of U.S. tariffs.
- The decline in U.S.-bound exports has slowed, dropping 8.6% in October compared to 12% in September.
- Indian exporters are diversifying to new markets and offering discounts to retain U.S. customers.
- The Indian government is supporting businesses with new trade deals, tax cuts, and a $5.1 billion export package.
- Increased competition from cheaper Chinese goods remains a significant challenge for Indian businesses in global markets.
Navigating High Tariffs
Trade discussions between New Delhi and Washington have continued for months, even as other Asian nations have secured agreements to lower tariffs. The U.S. has imposed duties of up to 50% on certain Indian imports, creating significant pressure on exporters.
However, recent data suggests a level of resilience. Indian exports to the United States fell 8.6% year-on-year in October, reaching $6.3 billion. This marks an improvement from the 12% decline recorded in September, the first full month under the new tariff structure.
A senior government official involved in the negotiations noted that the broader economic damage has been limited so far. This has given Indian negotiators the flexibility to pursue a deal that aligns with the country's long-term interests rather than accepting unfavorable terms under pressure.
The Path of Negotiations
Indian officials have publicly stated they will not rush into a trade agreement. The expectation within New Delhi is that Washington may eventually roll back a 25% tariff linked to Russian oil purchases, aiming for an overall rate closer to 15%. In return, India is reportedly prepared to lower its own import tariffs on over 80% of goods, while carefully protecting sensitive domestic sectors like agriculture.
A Strengthened Economic Position
The foundation of India's confidence lies in its strong domestic performance. The nation's economy expanded by an impressive 7% in the July-September quarter. The central bank projects a 6.8% growth rate for the full financial year, indicating a stable and self-reliant economic base.
This internal strength reduces dependency on any single export market and provides a buffer against external trade shocks.
"For now, we’ve avoided the worst impact of the 50% U.S. tariffs. If needed, we are ready to wait," stated a senior government official familiar with the trade talks, who spoke on the condition of anonymity.
The government has also taken proactive steps to bolster its trade ecosystem. Recent agreements with the United Kingdom, the United Arab Emirates, and Australia are opening up new avenues for Indian goods. Additionally, a $5.1 billion support package has been introduced to boost exports, complemented by tax cuts on raw materials to help manufacturers stay competitive.
Exporter Strategies and Domestic Support
Indian businesses have not been passive in the face of these challenges. Many have actively sought to mitigate the impact of U.S. tariffs through a combination of strategic pivots and customer retention tactics.
According to industry associations, exporters have successfully diversified their client base, focusing on new opportunities in African and European markets. To hold onto their existing American buyers, many companies are absorbing a portion of the tariff costs themselves.
Absorbing the Costs
In the apparel and footwear sectors, firms are reportedly absorbing costs of up to 20%. N Thirukkumaran of the Tirupur Exporters’ Association noted that garment exporters are offering discounts between 10% and 20% to maintain their U.S. business relationships.
This effort is supported by domestic policy. The government has implemented tax cuts on hundreds of consumer items, which boosts local demand and helps businesses maintain production volumes. Specific tax relief on inputs like man-made fibres has provided direct assistance to the crucial textile industry.
The Looming Challenge from China
Despite these adaptive measures, Indian exporters face a formidable and growing challenge: intensified competition from China. With over-capacity in its own domestic market, Chinese businesses are aggressively pushing cheaper goods into the same international markets where India is trying to expand.
Rahul Tikoo, CEO of Mumbai-based specialty chemical maker Optime, commented on the difficulty of this competition. “Chinese businesses are well-entrenched and their domestic situation has made them highly competitive,” he said.
This pressure is reflected in the trade data. In October, India's goods exports to non-U.S. markets saw a year-on-year decline of 12.5%. This drop was sharper than the decline in exports to the U.S., driven by weaker performance in engineering, petroleum, and jewellery shipments.
According to Pranjul Bhandari, chief India economist at HSBC, this trend “may reflect heightened competition in non-U.S. markets as countries diversify exports post tariff announcements.” This underscores the complex global landscape Indian businesses must navigate as they adapt to the new trade realities.