Parl panel for new bilateral, regional trade pacts to mitigate tariff risk

The Parliamentary Standing Committee on Finance has recommended the government to forge new bilateral and regional trade agreements to diversify export markets and reduce reliance on a few key destinations, particularly in light of the US imposing a 50 per cent tariff on Indian goods.

This tariff is expected to significantly impact labour-intensive sectors such as chemicals and fertilisers, textiles and apparel, and gems and jewellery, which are predominantly driven by micro, small, and medium enterprises (MSMEs). To support these businesses, the committee also recommended improving access to funding for MSMEs.

The committee highlighted concerns over high interest rates on the Trade Receivables Discounting System (TReDS), which currently reach up to 18 per cent per annum. It suggested that the government review these rates and take steps to lower them, such as fostering greater competition among financiers or setting a benchmark rate.

TReDS, regulated by the Reserve Bank of India, is an electronic platform that facilitates timely payments to MSME suppliers by enabling the financing of trade receivables from corporate buyers, government departments, and public sector undertakings.

The US tariffs are likely to raise costs for Indian exporters, with the US accounting for nearly 20 per cent of India’s total exports. In the financial year 2024-25 (April-March), India’s exports to the US were valued at $86.51 billion, with a trade surplus of $40.82 billion. To strengthen India’s position in global trade, the committee emphasised the need to recalibrate the country’s export strategy, focusing on enhancing manufacturing competitiveness and achieving greater market diversification.