Informist, Monday, Aug. 18, 2025

By Priyasmita Dutta

NEW DELHI – The government is planning to take well-calibrated measures to deal with the evolving global trade situation, while ensuring policy continuity, a senior finance ministry official said. Amid rising demand from exporters for supportive government measures and schemes, the official said that "no sudden, hasty decisions" will be taken. "We will need at least two months to gauge the impact of the announced reciprocal tariffs by the US before deciding on any such measure," the official told Informist.

Indian exporters are reeling under the threat of Washington's 50% tariff on goods exported to US, of which 25% is already effective from Aug. 7 and another 25% will come into effect from Aug. 27. US President Donald Trump raised the duty on Indian goods to 50% from 25% announced earlier to penalise New Delhi for its purchase of oil and defence equipment from Moscow.

Small scale exporters and micro, small and medium enterprises from labour-intensive sectors, who will particularly bear the brunt of US' tariffs, have already called for financial assistance in the form of cheaper credit. Multiple demands have been made to bring back flagship government credit support schemes like Interest Equalisation Scheme and Emergency Credit Line Guarantee Scheme.

The finance ministry official said that while such demands have been put forth in stakeholder consultations held so far, the government will refrain from quick measures without assessing the full impact from reciprocal tariffs first. The ministry has two aspects to consider before making any such announcement – to be fully sure about the long-term impact of the US' tariff and the fiscal and political implication of bringing such schemes, the official added.

In 2015, the government had announced the Interest Equalisation Scheme, which gave subsidy on interest provided on pre-and post-shipment export credit--varying between 3% and 5%--to exporters. Banks gave credit at lower interest rates to exporters and the differential amount was later refunded by the government. Emergency Credit Line Guarantee Scheme, on the other hand, was announced in 2020 to help businesses meet their operational liabilities and resume businesses in view of the distress caused by the COVID-19 crisis. Under this scheme, the government provided 100% guarantee against any losses suffered by lenders due to non-repayment of loans by borrowers.

According to the finance ministry official, both the schemes were announced after extensive calibration and amid different economic scenarios. "Our exports are resilient and we do not really see too much impact from tariffs because they may be short-lived," the official said. "The tariffs may be a tool of diplomatic negotiation and a weapon to coerce India into quickly sealing a trade agreement."

The ministry is extremely cautious about rolling out such schemes as discontinuing them will be politically very difficult in case the tariffs are reduced at a later stage. "Tariffs can be slashed overnight, but government schemes cannot be rolled back overnight," the official said. "It is best we wait it out," the official added.

India's merchandise goods exports were up 7.3% on year in July at $37.24 billion, marking the first on-year rise in three months, as traders likely rushed shipments to the US ahead of the August tariff deadline. Although India was relying heavily on a trade deal with US to shield from any adverse tariff impact, it now looks far from conclusion.

According to the official, the government has asked trade bodies and exporters to immediately look for alternate potential markets to expedite market diversification, which will be a long-term solution to geopolitical shocks that hamper trade. "Yes, market diversification takes time but US' tariff threat should work as a trigger for exporters to understand the necessity of the move," the official said.

In 2024-25 (Apr-Mar), India exported $86.51 billion worth of goods to the US and had a trade surplus of $40.82 billion. In the current year, the additional tariff on nearly 55% of exports to the US poses a risk to almost $50 billion of Indian goods from labour-intensive sectors such as chemicals and fertilisers, textile and apparel, gem and jewellery, shrimp and seafood, furniture and beddings, and machinery and mechanical appliances, among others.

According to latest data from the commerce ministry, out of India's total goods exports worth $149.20 billion in Apr-Jul, $33.53 billion was to US. "There is West Asian market like the United Arab Emirates and large markets like the European Union where we see huge scope to scale up exports," the official said. "Countries with whom we already have trade agreements should also be fully leveraged," the official added. End

US$1 = INR 87.37

Edited by Ashish Shirke

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