Indian Exporters Brace for US Tariff Impact
In a recent interview, Sanjay Nayar, founder and chairman of Sorin Investments and president of Assocham, discussed the implications of US tariffs on India’s economy and exports. While acknowledging the challenges posed by these tariffs, particularly for sectors like textiles and engineering, Nayar emphasized India’s robust economic fundamentals and the potential for growth through supply chain diversification. He also highlighted the need for Indian businesses to adapt to evolving trade policies as the government pursues free trade agreements (FTAs) with various nations.
Navigating the Tariff Landscape
The introduction of US tariffs is expected to exert pressure on specific Indian exporters, particularly in the textile and engineering sectors. Nayar pointed out that approximately 18% of India’s merchandise exports are directed to the US, making the impact significant. However, he remains optimistic about India’s economic resilience, which is bolstered by strong domestic demand.
To mitigate the effects of these tariffs, Indian manufacturers are likely to focus on diversifying their supply chains and leveraging existing FTAs with countries like the UAE and Australia. This strategy aims to reduce over-reliance on the US market. The “China+1” strategy is gaining traction, with American buyers increasingly viewing India as a reliable alternative sourcing hub. While some exporters may face immediate challenges, Nayar believes that the long-term outlook remains positive, as Indian businesses begin to future-proof their operations through quality enhancements and digital supply chain integration.
Adapting to Changing Trade Policies
As the Indian government aggressively pursues FTAs with the UK, EU, and other partners, businesses must adapt to a shifting trade landscape. Nayar emphasized that Indian firms need to enhance their competitiveness without relying on high tariffs. Initiatives such as Production-Linked Incentive (PLI) schemes and Goods and Services Tax (GST) rationalization are already encouraging companies to modernize their operations and improve product quality.
While established players may experience pressure during this transition, the next generation of Indian enterprises appears more agile and aligned with global standards. Although the shift in trade policy may cause short-term disruptions, it is expected to lay the groundwork for long-term competitiveness in the global market.
The Need for Structural Reforms
Nayar stressed the importance of consistent execution in policy frameworks to foster a stable business environment. He called for the government to prioritize deep structural reforms, particularly in judicial and contract enforcement. Delays in these areas can hinder investments, discourage risk-taking, and limit job creation.
Furthermore, he highlighted the necessity for micro, small, and medium enterprises (MSMEs) to gain access to scaled credit and institutional support to participate effectively in exports and value chains. Nayar urged the private sector to invest more in research and development, capability-building, and workforce training, rather than relying solely on tax incentives. He warned that the current model, which offers limited competition and innovation, is unsustainable in the long run.
Addressing Startup Innovation Concerns
In response to Union Minister Piyush Goyal’s concerns regarding Indian startups not focusing on cutting-edge innovation, Nayar acknowledged the validity of the minister’s remarks. He noted that many startups have prioritized scaling their operations over fostering innovation. However, he also pointed out the significant progress the Indian startup ecosystem has made, producing category-defining companies in sectors such as fintech, logistics, and health-tech.
Looking ahead, Nayar believes the next wave of innovation must extend beyond app-based models to encompass deep tech and industrial advancements. This shift is crucial for ensuring that Indian startups remain competitive on a global scale and contribute meaningfully to the economy.
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