Secondary, tertiary impact of US tariff poses challenges: FinMin

The immediate impact of recent US tariffs on Indian exports may appear limited but their secondary and tertiary effects on the economy pose challenges that must be addressed, the Finance Ministry said in a report on Wednesday amid the US effecting a steep 50 per cent tariff on shipments from India.

Ongoing India-US trade negotiations are critical in addressing these issues, including the secondary and tertiary effects of high tariff by the US on Indian goods, the monthly economic review released by the ministry said.

The steep 50 per cent tariff on Indian goods entering the US, which came into effect from August 27, would impact exports worth more than USD 48 billion. The sectors which would bear the brunt of the high import duties imposed by the Trump administration include textiles/ clothing, gems and jewellery, shrimp, leather and footwear, animal products, chemicals, and electrical and mechanical machinery.

In line with the global shift towards diversification and strategic realignment, it said, India was actively pursuing a diversified trade strategy to sustain its resilient performance.

“This includes the recently concluded FTA with the UK and EFTA and ongoing FTA negotiations with the US, EU, New Zealand, Chile and Peru. But, these initiatives will take time to show results and may not fully address the shortfall in exports to the US that may arise if the current tariff rates on India persist,” it said.

To enhance economic growth amidst the challenging global landscape, the PM has announced a few initiatives focusing on policy reforms.

First, the creation of a Task Force for Next-Generation Reforms aims at further simplifying regulations, lowering compliance costs, and fostering a more enabling environment for startups, MSMEs, and entrepreneurs, it said, adding, the planned rollout of next-generation GST reforms in the coming months, with an emphasis on reducing the tax burden on essential items, is expected to provide direct relief to households and boost consumption demand.

Complementing these measures, the rating upgrade is anticipated to reduce the borrowing costs, attract greater foreign capital inflows, widen the access to global capital markets, boost disposable income, reduce inflationary pressures, cut input costs for businesses, and support growth, it said.

Amid global uncertainties, these government initiatives are charting a growth trajectory driven by long-term reforms that will boost disposable income.