With US President Donald Trump’s reciprocal tariffs of 25 per cent set to hit Indian exporters from August 7, the government is in fresh consultations with the industry for inputs for the next round of negotiations on the India-US bilateral trade agreement (BTA) scheduled later this month.
“Exporters not only want the BTA to have provisions that would turn the tariff disadvantage that they have right now with respect to competing countries into a distinct advantage, they also want the uncertainty over the unspecified penalty for buying oil and arms from Russia to be addressed on priority,” a source tracking the matter said.
Trump’s revised reciprocal tariffs formalised on August 1 places India at a 5-6 per cent disadvantage over countries like Bangladesh, Vietnam, Indonesia, Malaysia, Philippines and Pakistan which have been hit with tariffs of 19-20 per cent.
Back & forth
As most of these countries have already entered into trade deals with the US and are still only marginally better off than India, there are expectations that if India manages to work out a BTA with the US, it could turn around its disadvantage into an advantage, the source said.
“To sharpen its negotiating posture, the government is working with exporters to finetune its list of demands on both tariff and non-tariff barriers that the US could address for better market access,” the source said.
A negotiating team from the US will be in India on August 25 for the next round of the India-US BTA which has been stuck over America’s demands for market access for a large number of items, including agriculture. New Delhi has reiterated that it will not compromise on its redlines in the negotiations which include sensitive farm products, dairy, GM products and product specifications that are connected with religious sentiments.
Some exporters are of the view that while they could deal with the current tariff differential over competitors with some help from the government, what was absolutely essential was clarity over the penalty element.
Cloud around penalty
Trump had earlier said that the US would not only impose a 25 per cent reciprocal tariff on Indian exports, but also a penalty for buying oil and defence goods from Russia. However, the executive order that he signed on August 1 only mentioned the reciprocal tariff and not the penalty.
“We have absolutely no idea about the extent of penalisation being planned by the US. It is an unspecified quantum. There is no reference to it in the executive order. The buyers will hesitate in placing orders and exporters would not know how to include it in their costing for long-term orders,” a Delhi-based garments exporter said.
Meanwhile, exporters have sought incentives from the government to export to the US that could help counter some of the tariff advantage that competing economies have. Commerce & Industry Minister Piyush Goyal met exporters from sectors like engineering goods, steel, agriculture, seafood & food processing on Saturday, and more are in the pipeline.
Interventions sought by exporters include re-introduction of the popular Merchandise Export from India Scheme (MEIS); early resumption of the interest equalisation scheme with higher interest subsidy, and enhanced rates under existing schemes like Remission of Duties and Taxes on Exported Products (RoDTEP).
