"Setbacks Eventually Make Us Stronger": India Seeks To Mitigate Ripple Effects As US Tariffs Take Effect

The immediate impact of recent US tariffs on Indian exports may appear limited, but their secondary and tertiary effects on the economy pose significant challenges that must be addressed, the Finance Ministry said in its monthly economic review on Wednesday (27 August).

The statement came amid Washington imposing a steep 50 per cent tariff on Indian goods, effective 27 August, covering exports worth over $48 billion.

The sectors expected to be hit hardest include textiles and clothing, gems and jewellery, shrimp, leather and footwear, animal products, chemicals, and electrical and mechanical machinery, NDTV reported.

"While the immediate impact of recent US tariffs on Indian exports may appear limited, their secondary and tertiary effects on the economy pose challenges that must be addressed. In this context, the ongoing India-US trade negotiations will be crucial," the report said.

The ministry emphasised that while near-term risks to exports and capital formation remain due to tariff-related uncertainties, coordinated efforts by the government and private sector can help mitigate the disruptions.

"Acting in tandem and concert, [they] can keep the disruptions to a minimum," it added.

It also underlined the importance of resilience:

"Setbacks eventually make us stronger and more agile, if handled properly. If the near-term economic pain is absorbed more by those who have the ability and the financial strength to do so, then small and medium enterprises in downstream industries will emerge stronger from the trade imbroglio. Now is the time to demonstrate an understanding of national interest."

Diversification Strategies

In line with global realignments, India is pursuing a diversified trade strategy.

The ministry highlighted the recently concluded free trade agreements (FTAs) with the UK and the European Free Trade Association (EFTA), as well as ongoing negotiations with the US, EU, New Zealand, Chile, and Peru.

However, it cautioned that these deals will take time to yield results and may not fully offset the export losses caused by higher US tariffs.

Rating Upgrade and Domestic Cushion

The report noted that India's strong macroeconomic fundamentals and policy stability recently earned it a sovereign rating upgrade by S&P from BBB- to BBB.

"This upgrade serves as a testament to the economy's robust macroeconomic fundamentals and ongoing reform initiatives," it said.

Domestically, above-normal rainfall and better sowing of kharif crops are expected to keep food inflation moderate.

"An increased market arrival in Q1, comfortable buffer stocks and better output prospects, coupled with stable global oil markets, might keep the prices of food grain moderate," it said.

Reform Push

To bolster growth amid global headwinds, the government has announced new initiatives, including a Task Force for Next-Generation Reforms to simplify regulations and reduce compliance costs.

Next-generation GST reforms, focusing on lowering the tax burden on essential goods, are also in the pipeline.

The ministry said these steps, coupled with the rating upgrade, are expected to lower borrowing costs, attract foreign capital, boost disposable incomes, and ease inflationary pressures.

Employment-focused measures like the PM Viksit Bharat Rozgar Yojana, along with reforms in education and skills development, aim to prepare the workforce for future demands.

Taken together, the ministry said, these measures and the improved rating will "underpin growth by encouraging investment, stimulating consumption, increasing employment opportunities and strengthening confidence in the economy's long-term trajectory."

Please click here to add Swarajya as your preferred and trusted news source on Google.

Also Read: Tariffs On Indian Exports May Backfire On US, Higher Inflation And Slower Growth Likely: Report