U.S. President Donald Trump recently announced a new set of reciprocal tariffs that are disrupting the global economy, and India is preparing to absorb the blow. Some industries remain unscathed, but those who trade actively with the U.S. are in deep trouble. The focus of this paper is to analyze the trade blunders created by the war in certain crucial Indian industries.
Electronics: The Industry Advantage and Setback
The electronics industry as well as the manufacturing sub-sector of India’s economy has found itself in a complicated position. High tariff rates are troubling, but they could also bring about some benefits. India’s electronics sector, especially manufacturing, is caught in a complex situation. For instance, the downside is that the U.S. tariff hikes put a threat, but the upside is offered by American companies looking to set up production facilities abroad. Ashok Gupta, the chairperson of Optiemus Infracom, believes that India’s lower industrial tariffs could pose an advantage for India. India could emerge as an electronics manufacturing powerhouse. This scenario could lead to the best position for India as a manufacturing hub and gain potential business and economic benefits. Nevertheless, there is still heavy pressure from India’s cost burdens due to tariffs.
Gems and Jewelry: Suffering the Consequences
The Indian gems and jewelry sector is likely to incur the greatest impacts of the recent changes in tariff regimes. After enjoying relatively low tariffs averaging 2.12%, this sector now has to contend with an increase in operational costs, which is bound to erode its competitive edge within the US market. Considering the US market is an integral revenue source for this industry, diminished demand would result in higher unemployment and losses for Indian jewelers. The industry that has always been resilient is now emerging from this slowdown needing to seek new markets to penetrate as well as establish brand equity and add value to sustain their market share.
Automobiles: Weighing the New Risks Against Opportunities
Alongside an already struggling automobile sector due to global supply chain inefficiencies, a new set of challenges has now emerged. The auto parts are not subject to the 26% reciprocal tariff, but the overarching 25% duty on aluminum and steel does remain a threat. These factors escalate the operational expenses and diminish the competitive edge Indian auto exporters previously enjoyed. In the words of Trezix co-founder and Chief Revenue Officer Sunil Kharbanda, the lack of revenue streams and tightened margins all add up to roughly $400-500 million in reduced price competitiveness. It’s also believed that Indian manufacturers will attempt to shift their export market focus in latter scenarios.
But there might be some good news for the Indian electric vehicle (EV) industry, as pointed out by Saurabh Agarwal, the partner & automotive tax leader at EY India. He claims that the increasing U.S. automotive tariffs might offer India the chance to gain greater consumption in the American market, especially for low-end vehicles. Concerning the Indian share of the American auto market and comparing it with China’s dominance, Agarwal makes the argument that there is potential for considerable expansion. In his opinion, the Indian government could help achieve this by increasing the PLI scheme for auto parts and changing its scope, duration, and length.
Metals and Manufacturing: Surge in Input Prices
The tariffs will have an impact on the auto sector, but they will also, and perhaps more so, affect the broader metals and manufacturing industries. While auto parts have been spared, the already existing 25% duty on aluminum and steel will worsen the costs of production for Indian manufacturers that depend on these inputs. As a result, Indian-manufactured products will become less competitive in the international trade market. These risks of tariffs, as pointed out by Vikram Kasat of PL Capital, can bring about a U.S. and global recession, which these days is difficult for the manufacturing sector.
Pharmaceuticals: A Temporary Benefit?
At the moment, the newly imposed tariffs do not include India’s $9 billion pharmaceutical exports to the U.S. This is a bit of relief to the industry that significantly aids in providing cheaper generic medicines to the American market. Even so, some analysts warn that this relief could be short-lived, and situation-specific sectoral trade sanctions may still come into place. Trideep Bhattacharya, who is president & chief investment officer at Edelweiss MF, mentions the good news but points out that there are chances of heightened recession fears in the U.S., which could indirectly influence pharmaceutical demand.
The Bigger Picture: Moving Through Turbulence
Overall, the effect that Trump’s tariffs impose on the GDP of India is close to 0.4%. This number is still somewhat optimistic given that India does stand better than a lot of its Asian counterparts. However, the prospect of economic volatility still looms. Vineet Agrawal, one of the founders of Jiraaf, draws attention to the reciprocal tariff prices being greater than anticipated but does cite the optimistic fact of India’s comparatively lower rates against certain rivals. He is, however, concerned that other affected nations may act rather aggressively, anti-globalization, and disrupt international trade circulation.
A Trial of Endurance and Flexibility
The challenges posed by U.S. tariffs are multi-faceted and dynamic in nature for Indian industries. While some sectors might exploit the disruption for growth, others will struggle immensely. In this period of uncertainty, how well Indian businesses adapt, manage costs, and diversify markets will be essential. The enduring effects of these tariffs on India’s economy will ultimately be determined by the policy strategies implemented by the Indian government alongside the indomitable spirit of Indian industries.
