India's MSME exports in textiles, chemicals to be hit most by US tariffs as they form major part of shipments to US: Crisil

New Delhi [India], August 20 : Micro, small and medium enterprises (MSMEs) in sectors such as textiles, diamonds and chemicals, which together account for nearly 45 per cent of India's total exports, are likely to be the most affected by the imposition of higher tariffs by the United States, according to a report by Crisil Intelligence.

The US currently levies an ad valorem duty of 25 per cent on Indian goods, but has announced an additional 25 per cent tariff that will take effect from August 27, raising the total duty to 50 per cent.

The report noted that this increase will significantly affect Indian exporters, especially MSMEs, which dominate key export sectors.

The textiles, gems and jewellery, and seafood industries, which together make up about 25 per cent of India's total exports to the US, are likely to be hit the hardest.

MSMEs have more than 70 per cent share in these sectors. In the chemicals sector, where MSMEs account for about 40 per cent share, the higher tariffs will also hurt exporters.

Pushan Sharma, Director, Crisil Intelligence said, "Partial absorption of the increased product prices due to higher tariffs will put pressure on MSMEs, squeeze their already-slim margins and pose a material challenge to their competitiveness. For instance, those into readymade garments (RMG) are expected to lose ground in the US as the tariff increases to 61 per cent, including 50 per cent additional ad valorem duty, compared with peers in Bangladesh and Vietnam tariffed at 31 per cent. The Tirupur cluster, which accounts for over 30 per cent of India's RMG exports, will be severely impacted as approx. 30 per cent of its exports are to the US."

In the gems and jewellery sector, Surat's diamond polishers, who dominate the country's exports with over 80 per cent share, will also be severely affected.

Diamonds form over half of India's total gems and jewellery exports, with the US being a major consumer, accounting for nearly a third of shipments. Similarly, seafood MSMEs will struggle to compete with Ecuador, which enjoys a lower 15 per cent tariff and is geographically closer to the US.

The chemical industry also faces stiff competition from Japan and South Korea, which face lower tariffs. Auto component MSMEs supplying gearbox and transmission equipment may also feel the heat as the US has a significant approx. 40 per cent exposure in this segment, though overall auto component exports to the US remain limited at 3.5 per cent of India's production.

Overall, the US tariffs will affect about USD 19 billion worth of exports across textiles, chemicals, seafood and auto components.

To mitigate the impact, Crisil mentioned that India could boost exports to other destinations and leverage the India-UK free trade agreement.

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