New Delhi: The imposition of 25 per cent tariff on India with penalty is a “bad business decision” but the mysterious forces of global supply chain will auto adjust and cushion the impact, and Indian businesses and firms would do well to reinvigorate the ‘Made in India’ as a hallmark of unquestionable quality, an SBI Research report said on Friday.
Not surprisingly, the US GDP, inflation and currency face a greater risk of downgrades compared to India, the report noted.
Though the US is India’s top exporter (20 per cent in FY25), India has diversified its export destinations, and the top 10 countries only accounted for 53 per cent of total exports.
The top 15 items exported to the US accounted for 63 per cent of total exports. Electronics, gems and jewellery, pharmaceuticals and nuclear reactors and machinery account for 49 per cent of India’s exports to the US.
The earlier tariff imposed by the US on such articles varied from 0 per cent (on diamonds, smartphones, pharma products, among others) to a maximum of 10.8 per cent (other bed linen of cotton). Now all of them will face a 25 per cent tariff.
“Exports of smartphones and photovoltaic cells to the US have seen a spurt by the PLI scheme of the government, and rationalisation of the GST on cut and polished diamonds has pushed gems and jewellery exports to the US. For the other products, it’s the robust demand from the US that led to higher exports, according to the SBI report.
India has been a cornerstone of the global supply chain for affordable, high-quality and availability of essential medicines, particularly life-saving oncology drugs and antibiotics.
In the generic drug market, India supplies nearly 47 per cent of the pharmaceutical needs of the US. If the US shifts manufacturing and API production to other countries or domestic facilities, it will take a minimum of 3-5 years for meaningful capacity. So, the tariff rise may lead to drug shortages and price increases for American citizens.
As the US accounts for 40 per cent of India’s pharma exports, if a 25 per cent tariff continues, it may hit earnings of pharma companies by 2-8 per cent in FY26, as many big pharma companies’ revenue from the US stood in the range of 40-50 per cent.
Further, the tariff will reduce competitiveness in the world’s largest pharma market and the profit margins pressure due to the inability to pass on costs, the report noted.
“When we map the sectors with most favoured nation (MFN) tariffs imposed by India on the corresponding imports from the US, the average MFN tariff comes to around 20 per cent. Certain sectors like Automobile, FMCG, alcoholic beverages and tobacco, electrical equipment, textile and consumer durables stand out as the tariff applied is 15 per cent or more. The Indian government can think of reducing the tariffs in such sectors,” the SBI report suggested.
(IANS)
