Navneet Agarwal marked Ganesh Chaturthi at his Chennai home on Wednesday much as he does every year. But alongside the customary prayers to the deity of good fortune, this year’s offerings carried a special plea.
Agarwal sought divine help for relief from the US tariff hike that came into effect from Wednesday, upending the viability of his castings business that spans Tamil Nadu and Bengal, employing hundreds of people.
With fresh purchase orders on hold from the US buyers and shipments on the slow lane, it is a critical situation for many casting units in the country, including Bengal’s Howrah.
“We frontloaded the exports of some items to dodge the tariff but it wasn’t enough. There is no visibility how things will pan out in 15 days from now,” Agarwal, managing partner of R.B. Agarwalla & Co, said.
US treasury secretary Scott Bessent told Fox News on Wednesday that the two countries would be able to resolve their differences. “I think, at the end of the day, we (India and the US) will come together,” he said (See Business).
Although Agarwal hopes that the tariff tension will be temporary, it could not have come at a worse time given that the festive season kicks off in a month.
“Every worker is looking to work overtime to make some extra money now. But we are afraid that export-focused units would be hard pressed to find enough jobs,” said Ravi Sehgal, former chairman of the Engineering Export Promotion Council.
The crushing 50 per cent tariff is going to hit the labour-intensive garments, gems and jewellery, footwear, and furniture sectors ahead of the festive season, potentially impacting consumption-led demand in the economy.
Besides, the promise made by Prime Minister Narendra Modi on Independence Day about cutting the GST on a slew of items may lead to a slowdown in the immediate future, if buyers defer their purchase decisions.
The Federation of Automobile Dealers Associations has called for speeding up the GST rate cuts to protect festive auto sales. Car prices are likely to fall substantially if the GST rates are whittled down from 28 per cent to 18 per cent.
The sales of consumer durables such as television and air-conditioners, too, may slow down if the consumers delay spending. But it may not be easy for the producers or dealers to pass on the tax benefits, when approved by the GST Council, given that the trade channels are already flushed with old stocks.
If consumption is hit and two-thirds of India’s $86.5 billion worth of export to the US is put to risk by the 50 per cent tariff, it may also push the capital expenditure planned by the private sector onto the slow lane.
An unnamed government source said the communication channels between the US and India remain open.Rating agencies Crisil and ICRA have warned that private capex may be hit by the tariffs.
“At present, the US tariff hikes pose a key challenge despite stronger corporate and bank balance sheets,” Crisil said in a note, adding that investors are also watching the spillover effects of China dumping goods in India.
ICRA’s chief economist, Aditi Nayar, however, said that sectors such as electronics and semiconductors and segments like electric vehicles would continue to see a scale-up in investments.
In its monthly report, published in the evening, the finance ministry said the tariff hike’s secondary and tertiary effects on the economy could pose challenges that must be addressed, although the immediate impact may be limited.