India-US trade deal: Unspecified Trump's penalty creates complications for business

NEW DELHI: Anticipating a good deal for Indian goods, M Rafeeque Ahmed, who leads the Farida Group, one of the largest leather and footwear exporters in the country, was headed to the US, hoping to lock in some orders. Now, he is reviewing his plans.

"The announcement is shocking and there is a lot of uncertainty. With a five-percentage point disadvantage compared to Vietnam, things are not looking very good. We have to see what we can do as there may be some cancellations and price renegotiation," he told TOI.

For Indian exporters it is the proposed penalty, currently unspecified, which is complicating matters as buyers would want complete certainty before placing orders. "Without clarity on the penalty, exporters and importers can't assess costs or plan how to manage tariff impact, disrupting supply chains and pricing," said Fieo DG Ajay Sahai.

In fact, some businesses were willing to reduce their margins further to retain their old buyers. Textiles, gems & jewellery, carpets and seafood are among sector that may be hit.Businesses are willing to make concessions for old buyers.

"In cotton garments, India's cost disadvantage vis-a-vis our major competitors Bangladesh and Vietnam is relatively low (3-4%) whereas it is higher (11-13%) in case of synthetic garments. A moderate tariff reduction from 26% (announced in April) to 15% could have helped India gain competitive advantage over Bangladesh and Vietnam in the US market. Even at 25%, we can be competitive vis-a-vis Bangladesh in cotton garments. But, the additional condition of penalty has upset the apple cart by pushing the trade possibilities with the USA into the zone of uncertainty," said AEPC secretary general Mithileshwar Thakur.

The ongoing talks for the trade deal with the US are, however, keeping hopes alive with businesses pushing govt to finalise the agreement at the earliest.

"With US being one of the key export destinations, this will severely impact the sectors like gems and jewellery that are heavily dependent on exports and are one of the biggest contributors to economy. We expect trade activities to remain muted with US," said Kama Jewelry MD Colin Shah.


Get an chance to win ₹5000 Amazon Voucher by taking part in India's Biggest Habit Index! Take the survey here