Tariff uncertainty clouds India’s spring-summer export season as US orders hang in balance

India's robust export sector, a significant pillar of its economic growth, currently faces a critical challenge stemming from 'tariff uncertainty', particularly impacting its crucial spring-summer export season and orders from the United States. This situation highlights the intricate dance between domestic policy, international trade dynamics, and global economic realities.

The background to this issue is rooted in the complex and often unpredictable landscape of global trade. India has been striving to boost its exports as part of its broader economic agenda, including initiatives like 'Make in India' and 'Atmanirbhar Bharat', aimed at making the country a global manufacturing and export hub. The US, being one of India's largest trading partners, is a vital market for a diverse range of Indian products, including textiles, apparel, handicrafts, engineering goods, and agricultural products. Trade relations between the two nations have seen fluctuations, including past disputes over tariffs and market access, such as the US withdrawal of Generalized System of Preferences (GSP) benefits for India in 2019, which significantly impacted certain export categories.

What precisely is happening is that Indian exporters are grappling with a lack of clarity regarding tariffs and trade policies, both domestically and internationally. This uncertainty could stem from several factors: potential changes in import duties imposed by the US, ambiguity surrounding India's own export incentive schemes, or broader shifts in global trade policies. Exporters are currently absorbing costs, often sharing them with international buyers, in the hope that policy clarity will emerge soon. However, this is a temporary measure, as prolonged uncertainty erodes profit margins, makes long-term planning difficult, and jeopardizes future orders. The spring-summer season is particularly critical for sectors like textiles and apparel, which operate on tight production schedules and depend heavily on advance orders.

Key stakeholders involved in this predicament include the Indian exporters themselves, who bear the direct financial burden and uncertainty. The Indian government, specifically the Ministry of Commerce & Industry and the Ministry of Finance, plays a pivotal role in formulating and implementing trade policies, negotiating with trading partners, and providing export promotion schemes. The US government, through its trade representative (USTR) and Department of Commerce, sets tariff policies and engages in bilateral trade discussions that directly affect market access for Indian goods. Furthermore, the vast Indian labour force employed in export-oriented industries stands to lose jobs and livelihoods if the export season is severely impacted. International buyers, primarily US importers, are also stakeholders, as they face supply chain disruptions and cost fluctuations.

This issue matters immensely for India. Economically, a slowdown in exports directly impacts India's balance of payments, foreign exchange reserves, and overall GDP growth. Export-oriented industries are significant employers, particularly in semi-skilled and unskilled labour, making the social impact of job losses potentially severe. Politically, the government faces pressure from industry bodies and trade associations to provide a stable and supportive policy environment. India's aspirations to become a $5 trillion economy are heavily reliant on robust export performance, and tariff uncertainty poses a significant hurdle to achieving this goal. Moreover, it underscores the need for India to diversify its export markets and reduce over-reliance on a few key destinations.

Historically, India has navigated various global trade challenges, often adapting its Foreign Trade Policy (FTP) to respond to evolving scenarios. The current FTP 2023 aims to make India a significant player in global trade by 2030, focusing on process re-engineering and automation. The issue of subsidies and countervailing duties has been a recurring theme, with India's export promotion schemes, such as the erstwhile Merchandise Exports from India Scheme (MEIS) and the current Remission of Duties and Taxes on Exported Products (RoDTEP), often coming under scrutiny from WTO members like the US. India's constitutional framework places foreign trade squarely within the Union List (Entry 41 of the Seventh Schedule, Article 246), empowering the Parliament to legislate on trade and commerce with foreign countries. The Foreign Trade (Development and Regulation) Act, 1992, is the primary legislation governing exports and imports. Article 265 mandates that no tax shall be levied or collected except by authority of law, ensuring that any tariffs or duties imposed must have legal backing.

Looking ahead, the future implications are significant. India needs to develop a more predictable and stable trade policy regime to instill confidence among exporters and international buyers. This might involve expedited resolution of policy ambiguities related to export incentives or proactive engagement in bilateral trade dialogues to mitigate potential tariff risks. Diversification of export markets beyond traditional partners like the US and Europe, perhaps towards Africa, Latin America, and Southeast Asia, could enhance resilience. Furthermore, continued investment in manufacturing infrastructure through schemes like the Production Linked Incentive (PLI) scheme can boost domestic competitiveness, making Indian goods more attractive globally, even in the face of tariff challenges. Ultimately, fostering a robust and resilient export ecosystem is crucial for India's sustained economic growth and employment generation.