Ratings firm Crisil said on Wednesday that the uncertainties surrounding the US tariffs might be a new hindrance to capital expenditure decisions in the current financial year, the warning coming on the heels of the Federation of Indian Export Organisations (FIEO) expressing “grave concern” over the US government’s imposition of an additional 25 per cent tariff on Indian-origin goods that kicked in from 9.31am IST Wednesday.
The additional 25 per cent tariff brings the total amount of levies imposed on New Delhi to 50 per cent, among the highest the Donald Trump administration has imposed on any country.
Crisil said that the government has so far been driving investments, with private corporate capital expenditure remaining muted.
According to the report, the imposition of tariffs is likely to hit sentiments, even as healthy corporate balance sheets support fresh investments.
In the current uncertain environment, free trade agreements (FTAs) can enhance investor confidence by reducing tariff barriers and establishing predictable trade policies, the ratings firm said.
As of August 24, US tariffs on India stand higher than those on Bangladesh, Vietnam and Indonesia.
The new challenges, which are holding back the animal spirits of the Indian private sector despite supportive macroeconomic parameters, are disruptions in the global supply chain due to rising geopolitical tensions and lingering domestic inefficiencies like high power and land costs, the report said.
According to the study, the opportunities stem from new trade agreements, like the FTA with the UK, and the ability of the corporate houses to invest.
Exporters’ SOS
The US tariffs “will severely disrupt the flow of Indian goods to its largest export market,” the exporters’ collective FIEO’s president S.C. Ralhan said in a statement on Tuesday before the tariffs kicked in.
Textiles and apparel manufacturers in Tirupur, Noida and Surat have halted production amid worsening cost competitiveness, the FIEO said. This sector is losing ground to lower‑cost rivals from Vietnam and Bangladesh.
The tariff increase risks of stockpile losses, disrupted supply chains and farmer distress for the seafood exports sector, the FIEO said pointing out that the US market absorbs nearly 40 per cent of such exports from India.
In other labour-intensive sectors of exports such as leather, ceramics, chemicals, handicrafts and carpets, the industry faces “a sharp erosion of competitiveness, particularly against European, South East and Mexican producers,” Ralhan said.
Delays, order cancellations and negated cost advantages loom large on these sectors, the FIEO said.
The FIEO urged that there is need for immediate government support, “which includes push for interest subvention schemes and export credit support to sustain working capital and liquidity. To further support this, low cost of credit and easy availability of credit with emphasis on MSMEs with the support from banks and financial institutions with special direction in this regard both from the government and the Reserve Bank of India.”
Ralhan also urged for a moratorium on payment of principal and interest for loans up to a period of one year.
“Additionally, automatic enhancement of the existing limit by 30 per cent along with collateral free lending on ECLGS [Emergency Credit Line Guarantee Scheme] lines may also be pushed as these will help in addressing the stress of these companies without much burden on the exchequer,” the FIEO said.
Besides, expanding PLI schemes, enhancing infrastructure, and invest in cold-chain/storage assets to strengthen competitiveness and aggressive market diversification through accelerated trade agreements with the EU, Oman, Chile, Peru, GCC, Africa, and other Latin American countries with a provision for early-harvest for labour-intensive sectors should be prioritised, the FIEO said.
“However, leveraging negotiating window for urgent diplomatic engagement with US still remains the key,” it said.
“Yet another approach could be promotion of Brand India & Innovation through enhanced global branding, invest in quality certifications, and embed innovation in export strategy to make Indian goods more attractive globally,” it added.
The FIEO appealed for swift, coordinated action among exporters, industry bodies and government agencies to protect livelihoods, reinforce global trade links and “navigate this turbulent phase”.