NEW DELHI: Blame it on Donald Trump's now-on, now-off tariffs. Frontloading of consignments by Indian exporters to beat higher duties - first in April, when reciprocal tariffs were announced, and now - may have resulted in goods exports to the US rising seven times faster than the overall growth.
During April-July, goods exports to the US jumped 21% to $33.5 billion, when overall exports grew 3% to $149.2 billion, the latest commerce department data showed. Although a 22% share of India's shipments does make Indian exports more vulnerable to the prospect of 50% additional duties, the high growth has given at least some of them the headroom to offer some discount, in case the 25% additional levy announced by Trump does kick in from Aug 27.
Keeping an eye on US-Russia talks
"We have spent the last week talking to buyers and in case of old buyers we are looking at some additional discount to retain the business even if it means that we have to pay out of our pockets for sometime.
Also read: Trump adviser says India should ‘start acting’ as strategic partner of US; ‘…it’s cozying up to Russia, China’"Although official negotiations with the US (scheduled to start Aug 25) have been postponed, we expect some breakthrough in the forthcoming weeks," said Sudhir Sekhri, chairman of the Apparel Export Promotion Council (AEPC).
When it comes to the first 25%, which has already been implemented, exporters have managed to share the burden and retain business, some of which is being fast-tracked to beat the deadline. For the next round, some of the contracts are coming with the clause that the discount being offered will not be applicable in case the additional 25%, secondary tariffs on India for buying Russian oil, do not kick in.
Most industry players, however, said it is not possible to retain business with a 50% tariff. "We operate on a very thin margin of 5-7%, where is the question of offering steep discounts to offset the impact of 25% additional duty? We can sacrifice our profits but can't sustain the business with losses," said Rajendra Kumar Jalan, chairman of the Council for Leather Exports, adding that the US-Russia talks have provided a ray of hope on the penalty not kicking in.
RC Ralhan, president of the Federation of Indian Export Organisations (Fieo) has convened a meeting on export promotion councils Monday to work out a joint petition for govt support. "There will be significant job losses if export orders are cancelled, especially in the MSME sector," he said.
Also read: Uncertainty over trade deal with US as August talks put offSo far, however, the going has been good. In fact, July's sectoral export numbers for all countries indicated that US shipments may have provided a fillip to growth.
For instance, gems and jewellery - where goods can be transported by air - saw a 28% jump in July when there was a decline of 0.7% during April-July. Similarly, pharma exports rose 14% in July, compared with 7.4% in the first four months of the fiscal year. Ditto for engineering goods (13.8% in July versus 6% for April-July) and plastics (4.4% against 2.6%).
"The US market has been expanding and Indian exporters have also focused on it as returns are good," said Ajay Sahay, director general at Fieo.
"Everybody was trying to frontload shipments. Order book was good in April-May, business generally was looking up because of the overall sentiment due to China+1. The sudden brakes will result in deceleration," added AEPC's Sekhri.
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