Steeper tariffs on neighbours possibly a silver lining for India

Bengaluru: Trump’s reciprocal tariffs are going to tell on 87 per cent of India’s $81 billion exports to the US, its biggest market globally, according to Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Group. Yet, India could gain from its competitors in the market having to grapple with heavier tariff.

As such, sectors such pharmaceuticals (in which India has a stronghold in the generic segment), IT services and textiles that have emerged unscathed from rain of tariffs, could well see some supply shifts.

Then again, some of India’s key competitors have been hit by far higher tariffs. While India has to deal with an additional 27 per cent levy, China has to contend with 54 per cent, Vietnam 46 per cent, Sri Lanka 44 per cent and Bangladesh 37 per cent.

China and Sri Lanka have had an edge over India in the US market for textiles and electronics. This could be dented with India’s lower tariff. Of the $107 billion worth of textile US imported in 2024, China accounted for around 30 per cent, Vietnam 13 per cent and India about 8 per cent, pointed out Vivek Tandon, founder, Revalyu Resources. India's relatively favourable reciprocal tariffs stand to enhance its competitiveness, emphasised analysts.

Another significant boost is for sectors that have been exempted from tariffs, including pharma, copper, semiconductors, energy products, and lumber. Sectors including steel and aluminium products and automotive parts have not been hit with additional tariffs, though they already function under the prevailing regime.

Pharma stands to be a key gainer, as per analysts. “The US administration has exempted pharmaceuticals from reciprocal tariffs, given its focus on enhancing availability of affordable medical care for US citizens. If considered later - ongoing drug shortages, higher cost of domestic pharmaceutical production and declining profitability of US pharma firms are expected to be taken into consideration,” said Anuj Sethi, Senior Director, Crisil Ratings.

However, these industries must not get complacent, warned analysts. Extracting benefits from the lower tariffs will be tricky. India will also have to be vigilant of a looming dumping threat from East Asian surplus such as China's electronics products, cautioned Ajai Chowdhry, Founder, HCL and Chairman, EPIC Foundation.

The previous China plus one strategy had benefitted Vietnam and Bangladesh, while India did not receive much benefit due to tariff and market access issues. However, in the present scenario, with ongoing trade discussions with other Western countries including the European Union and the UK, the upside largely remains for India, observed experts.

Footwear also stands to gain arising from steep tariffs on Vietnam (46%) and Cambodia (49%), with firms like Nike may look to shift sourcing to India to hedge against Vietnam’s cost spike, added Vikram Kasat - Head - Advisory, PL Capital.

Other sectors standing to benefit are manufacturing of toys, textiles, leather, agricultural produce such as seafood and rice, and IT services.

In the negotiations for tariff reductions that are already underway, another point in India’s favour is that its goods trade surplus with the US, at $50 billion, is far lower than that of China ($320 billion), Mexico ($180 billion), Vietnam ($120 billion), or Germany and Ireland (each at $90 billion), stated Hajra.