FIEO calls for enhancing diversification as Trump tariff likely to impact 55 per cent of India's exports to US

Ajay Sahai, Director General and CEO of FIEO, described the tariff proposal as "absolutely a shocker for Indian exporters" and warned it could sound "the death knell for India's export to the US."

The tariff impact would be severe, with Sahai explaining that roughly 55 per cent of India's exports to the US would be affected. "As compared to our competitors in Southeast Asia and Europe, we will be outpriced in the market by 30 to 35 per cent, and this much difference is not possible to absorb by the industry," he said.

The FIEO chief emphasized that even government intervention might not bridge the gap. "Even if we request the government, probably the government will not have that kind of money which will help us bridge the gap," Sahai noted, highlighting the scale of the financial challenge.

While acknowledging that exporters must "be ready to take a hit" in the short term, Sahai outlined a multi-pronged strategy for recovery. The diversification process, which began four months ago when tariff discussions started, will continue with increased urgency.

"Some of the exports may be absorbed by the domestic market, as we have a vibrant domestic market," Sahai said.

A crucial 21-day window exists before additional 25 per cent penalty duties for dealing with Russia come into effect, providing an opportunity for diplomatic intervention. Sahai highlighted the upcoming visit of a US team to India in the second half of August as a key moment for negotiations.

"That's a window which is available for us to negotiate. Whatever negotiation is possible should be done," he emphasized.

Sahai said that Prime Minister Narendra Modi has taken a firm stance on protecting India's agricultural sector, with declaring agriculture and dairy as non-negotiable areas. "We should make it very clear to the negotiating team that agriculture and dairy is not on the agenda for negotiation. For me, it's a red line which we should not cross."

The reasoning behind this position reflects India's unique agricultural landscape. "There are 770 million farmers in the country. In India, agriculture and dairy is for subsistence, it is for the livelihood of the people," Sahai explained.

He highlighted the stark contrast between Indian and US farming: "The average size of holding in India is half an acre, where the average size of holding in US may be 500 acres. The two are not comparable. If we open our agriculture sector, probably the farmers will be completely wiped out."

To address the widening trade deficit issue that sparked the tariff threat, FIEO suggests exploring alternative imports from the US. "We should look into whether there can be anything else which can be imported from the US, we can find some other products," Sahai proposed.

The organization is also pushing for accelerated implementation of Free Trade Agreements (FTAs) with the EU, Australia, and UK, which could provide alternative markets. "UK CETA will also come into effect in next six to nine months, and the government is talking about early harvest with the EU," Sahai noted.

He expressed hope that labour-intensive sectors, which would be worst affected by US tariffs, would be included in early harvest provisions of these trade deals.

FIEO is also exploring new partnerships with the Gulf Cooperation Council (GCC) countries to expedite diversification away from the US market. "We are looking into new partnerships with GCC also, and probably that will help to expedite the diversification from the US market to the rest of the markets," Sahai said.

The scale of the challenge cannot be understated. With an estimated USD 47-48 billion of exports at risk and competitive disadvantages of 30-35 per cent, the industry faces an absorption challenge that Sahai deemed "virtually not possible."

"The difference is so much that even if we request the government, the kind of fund which will be required is something which would not be possible for the government to compensate," he warned.

As India's export industry braces for potential upheaval, the coming weeks will be critical in determining whether diplomatic negotiations can avert what FIEO describes as a potentially catastrophic blow to India-US trade relations. The success of diversification efforts and alternative market penetration will likely determine the long-term resilience of India's export sector in this challenging new trade environment. (ANI)