US Tariff Reset Enhances India’s Export Competitiveness, According to Niti Aayog
India is poised to enhance its presence in the United States market, thanks to recent changes in Washington’s tariff policies. According to a report by Niti Aayog, the country is expected to gain a competitive edge in over 100 key product categories. With the U.S. imposing higher import tariffs on major trading partners like China and Mexico, Indian exporters are presented with a significant opportunity. The report highlights that both merchandise and services exports from India are on the rise, indicating a positive trend in international trade.
Competitive Edge in Key Product Categories
The Niti Aayog Trade Watch Quarterly report for Q3 FY25 reveals that India is likely to gain competitiveness in 22 of the top 30 product categories at the HS-2 level. This accounts for 61% of India’s exports to the U.S. and 68% of total U.S. imports in these categories. At a more detailed HS-4 level, India enjoys a favorable tariff differential in 78 of the top 100 products, which represent approximately 52% of its shipments to the U.S. This advantageous position arises from the U.S. imposing higher tariffs on key trade partners, including China, Canada, Mexico, Vietnam, and Thailand. The report notes that the baseline 10% duty on all imports, effective from April 2025, creates a “strategic window” for Indian exporters across various sectors, including nuclear reactors, electrical machinery, vehicles, apparel, and textiles.
Trade Data and Export Growth
Despite facing global demand challenges and geopolitical uncertainties, India’s trade data for Q3 FY25 reflects a sense of “cautious resilience.” Merchandise exports increased by 3% year-on-year, reaching $108.7 billion, while imports rose by 6.5% to $187.5 billion, resulting in a merchandise trade deficit of $78.7 billion. However, services exports saw a remarkable surge of 17%, totaling $102.6 billion, which helped create a surplus of $52.3 billion that partially offset the goods trade gap. Niti Aayog emphasized that India ranked as the world’s fifth-largest exporter of Digitally Delivered Services (DDS) in 2024, with exports amounting to $269 billion, driven primarily by IT services, professional consulting, and R&D outsourcing.
High-Tech and Value-Added Exports
The report highlights a significant rise in India’s high-tech and value-added merchandise exports. Notably, exports of aircraft, spacecraft, and related parts surged by over 200%, entering the top 10 export categories for the first time, largely due to demand from countries like Saudi Arabia, the UAE, and the Czech Republic. In 2024, India’s high-tech exports reached $80.6 billion, growing at a compound annual growth rate (CAGR) of 10.6% since 2014, and accounting for 18.3% of total merchandise exports. Electrical machinery and parts now constitute half of India’s high-tech shipments, surpassing nuclear reactors and boilers. In the realm of digitally delivered trade, ‘Other Business Services’ made up 53% of 2024 DDS exports, while ‘Computer Services’ contributed 39%, reflecting global trends.
Strategic Recommendations for Future Growth
Niti Aayog’s report underscores the importance of agile policy responses to capitalize on new trade alignments, particularly India’s tariff advantages in the U.S. The think tank recommends that India deepen its integration into global value chains, expand production-linked incentive schemes for labor-intensive sectors, and pursue trade agreements focused on services. A potential deal with the U.S. should prioritize digital trade, cross-border data flows, and mutual recognition of standards to further enhance India’s export capabilities. These strategic moves are essential for India to broaden its export footprint and strengthen its position in the global market.
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