Why in News: The U.S. has imposed a 25% tariff on India’s seafood exports, with the possibility of raising it to 50%, prompting the Indian government to consider tweaking the ₹2,250 crore Export Promotion Mission.
Introduction
- On August 11, the Central Government urged India’s seafood industry to “bravely face” the 25% U.S. tariff imposed on August 7, which may escalate to 50% by August 27, depending on trade negotiations.
- This marks a critical challenge for India’s export-dependent industries, especially seafood and textiles, where the U.S. is a dominant market.
Impact of U.S. Tariffs on India
1. Economic Impact
- Loss of competitiveness for Indian seafood, textiles, apparel, and gems & jewellery exports.
- MSMEs contribute 45.79% of India’s exports (FY25), hence tariffs directly threaten overall trade performance.
- Sudden supply chain disruptions are hard to manage as they take decades to build.
- Likely reduction in foreign exchange earnings and widening of the trade deficit.
- Small exporters may face bankruptcy due to narrow margins.
2. Employment Impact
- The fisheries sector (28 million workers) risks widespread livelihood loss.
- The textile and apparel sector, one of the largest employers, may see factory closures.
- MSMEs in rural/semi-urban areas could face severe layoffs.
- Potential rise in informal sector unemployment.
- Long-term social consequences including migration and income insecurity.
3. Diplomatic and Strategic Impact
- India-U.S. trade relations face deadlock, despite broader strategic convergence.
- Relations are arguably lower than Cold War levels in terms of economic trust.
- Tariffs highlight U.S. protectionism despite India’s efforts to deepen ties.
- Creates space for China to strengthen trade linkages with India’s neighbours.
- Undermines India’s goal of using the U.S. as a strategic counterbalance in Asia.
Government Response
1. Export Promotion Mission (EPM)
- Announced in Union Budget 2025 with ₹2,250 crore allocation.
- Designed to provide cheaper export credit to MSMEs.
- Aims to overcome non-tariff barriers through institutional support.
- Includes mechanisms for insurance of overseas payments.
- Expansion planned to include Textiles and Fisheries Ministries along with Commerce, MSME, and Finance.
Stakeholder Demands
- The fisheries sector seeks 240-day moratorium on export credit repayments.
- Textile, apparel, and gems & jewellery industries demand interest subvention schemes.
- MSMEs push for easing compliance norms and faster credit disbursal.
- Exporters seek government-backed market diversification schemes.
- Industry voices highlight the risk of large-scale job losses without intervention.
Challenges Highlighted
1. Over-dependence on the U.S. market for seafood and apparel exports.
2. Fragility of MSME exports, given limited access to credit and risk cover.
3. Inadequate diversification of export markets, leading to vulnerability.
4. Stalled bilateral negotiations with the U.S. despite strong diplomatic outreach.
5. Global protectionism trend, making reliance on Western markets risky.
Way Forward
1. Diversify export destinations to Africa, ASEAN, Latin America, and EU to reduce dependence on the U.S.
2. Strengthen EPM by ensuring quick access to credit, risk insurance, and sector-specific relief.
3. Reframe neighbourhood trade strategy, particularly exploring pragmatic economic engagement with China.
4. Enhance competitiveness by reducing logistics costs, improving ease of doing business, and promoting value-added exports.
5. Adopt strategic diplomacy by balancing relations with U.S., EU, and Asian economies to secure long-term trade resilience.
UPSC Relevance
General Studies Paper II: International Relations
- India–U.S. trade relations, implications of tariff wars, impact of global protectionism.
General Studies Paper III: Indian Economy
- Effects of U.S. tariffs on Indian exports (seafood, textiles, MSMEs).
Mains Practice Question
Q. “Over-dependence on a single export market is a structural weakness of India’s trade policy.” In light of recent tariff measures by the U.S., discuss strategies to build resilience in India’s export sector. (15 marks, 250 words)