Trade war, new front: India crafts plan to skirt US duties, focuses on Africa, LatAm

Mint

12 hours ago

India is preparing to counter stiff US tariffs by pivoting to new markets and offering incentives for exporters, even as Prime Minister Narendra Modi vows to protect the interests of the country's farmers and fishermen.
The government is scrambling to mitigate the impact of the tariffs, which now total 50% on some Indian goods entering the US. The plan, which was discussed in a series of meetings with export councils and trade organizations, is to develop a strategy that doesn't involve retaliation, three people aware of the matter said.
As part of the initiative, India is considering sending trade representatives to 'friendly nations" to study their markets and generate demand for Indian goods, one of the people said, speaking on the condition of anonymity. The government is also looking into setting up trade desks in underserved regions like Africa, Latin America, and Eastern Europe, which could unlock more than $60 billion in untapped export potential.
New markets
"These (new) markets are actively looking for reliable and cost-effective suppliers in areas where India, especially its MSMEs, holds a competitive edge—whether it is pharmaceuticals, textiles, engineering goods, agri- and non-agri machinery, processed foods or IT services," said the second person, also on the condition of anonymity.
On 2 August, Mint had reported that the Centre is scrambling to revamp its export strategy as the new US tariffs hit Indian goods and favour ASEAN rivals. India now shares a 50% tariff slab with Brazil, while most other countries face lower tariffs ranging between 10% and 20%.
The move comes after US President Donald Trump announced a new 25% duty on Indian goods for its continued purchase of Russian oil, adding to an existing 25% tariff. The duties are set to take effect on 27 August, leaving a window for both sides to reach an agreement.
No compromise
In his first public comments since the tariffs were announced, Modi said he would not compromise on the interests of India's farmers, even at a 'personal political cost." 'Today, India is ready for the country's farmers, fishermen, and dairy farmers," Modi said at a conference in New Delhi.
The Prime Minister's comments signal New Delhi's position that decisions on agricultural sustainability and energy security will not be swayed by external pressure.
Dammu Ravi, a top official at India's external affairs ministry, said negotiations are ongoing and that he's confident a mutually beneficial solution will be found.
'The high tariffs at this time don't discourage our industries; instead, they prompt us to explore new markets," Ravi told reporters on the sidelines of the LIDE Brazil India Forum event in Mumbai on Thursday.
Threat to trade
The tariffs threaten to disrupt trade flows between the two countries, which totalled $86.5 billion in Indian goods exported to the US in the last fiscal year. Sectors like textiles, engineering goods, marine products, and gems and jewellery are particularly vulnerable and could see exports fall by as much as 40% if the tariffs persist, according to analysts.
In addition to seeking out new markets, the government is considering offering financial relief to exporters, the people cited above said. One option under discussion is to raise the duty drawback rate from 1% to as high as 5% to help exporters absorb the added tax burden. Another is to re-introduce the Interest Equalization Scheme (IES), which offers exporters a subsidy on interest rates to lower borrowing costs. These initiatives would be funded by a new ₹20,000 crore export promotion mission.
The measures are an attempt to protect India's economic growth, which some economists fear could slip by 20 to 30 basis points to around 6.2% in the current fiscal year if the new tariffs are enacted.
Growth impact
'The impact on GDP may not be dramatic, but we could see growth closer to 6.2–6.3% in FY26," said Madan Sabnavis, chief economist at Bank of Baroda.
"With such exorbitant tariff rates, trade between the two nations would be virtually dead," said Madhavi Arora, an economist at Emkay Global Financial Services. "The dust will take time to settle. The trade saga is far from over. There is as much a geopolitical angle to this as an economic one. India is currently being made a scapegoat."
'While we believe a trade deal will eventually be negotiated between India and the US, we note that even nations that have cracked the US deal so far face unfavorable elevated tariffs, despite giving sweeping concessions to the US," said Arora.
Diplomatic channels
Despite the escalating tensions, Ravi suggested that diplomatic channels remain open.
'I don't see any logical reasoning behind the way they've been implemented—especially considering the strong strategic partnership between the US and India," Ravi said. 'Perhaps this is just a phase we need to overcome."
"By diversifying our export destinations, we can reduce overdependence on traditional partners like the US and build long-term trade resilience," the second person cited above said.
Queries sent to the Union commerce ministry remained unanswered.
Standoff
The standoff in trade negotiations with the US emerged during the second round of face-to-face talks that began on 4 June. The key point of contention between India and the US was dairy and agriculture, as first reported by Mint on 11 June.
Key sectors—such as textiles ($10.91 billion), engineering goods ($19.16 billion), agriculture ($2.53 billion), gems and jewellery ($9.94 billion), leather ($948.47 million), marine products ($2.68 billion), and plastics ($1.92 billion)—could face serious trouble—Exports in these categories could fall by as much as 40% if the 50% tariff remains in place for an extended period.
India exported goods worth $86.5 billion to the US in FY25, accounting for 20% of the country's total merchandise exports of $433.56 billion during the year. India's total agricultural exports to the US stood at $2.53 billion in FY25, up 19.3% from $2.12 billion in FY24.
BRICS
On the issue of de-dollarization by BRICS, of which India is also a member, Ravi said, 'The push for trading in national currencies isn't necessarily driven by a BRICS-level leadership decision, but more by a practical need felt across countries—especially in the Global South—post-covid, where many are facing a shortage of hard currency. So, naturally, countries are exploring alternatives to conduct trade in their own currencies."
He added that this discussion has been happening bilaterally as well as within the BRICS framework. 'In fact, some countries have already begun such transactions, and we may see this expand further," he said.
"The revised India-US tariff regime presents a cost hurdle for sectors like toys, stationery, homeware, and sports. It's an opportunity to become truly self-reliant, tap into India's vast domestic consumption, and strengthen ties with partner countries—while positioning India as a quality-driven, export-ready hub for design, sourcing, and production," said Shobhit Singh, MD and CEO of Stone Sapphire India Pvt. Ltd, a toys and stationery maker.
'The imposition of tariffs by the US government is not in the interest of Indian farmers. We urge the Centre not to succumb to the pressure tactics of the US government," said Joginder Singh Ugrahan, state president of Bhartiya Kisan Union (Ekta Ugrahan).
Ugrahan said a joint platform of the Samyukt Kisan Morcha (SKM) and 10 central trade unions would stage a nationwide protest on 13 August against the proposed US tariffs.
As India explores new trade partnerships in response to steep US tariff hikes on its exports, Prime Minister Modi on Thursday received a telephone call from Brazilian President Luiz Inácio Lula da Silva, with both leaders reaffirming their commitment to strengthen cooperation across key sectors.
According to an official statement by the PMO, the two leaders recalled their meeting in Brazil last month and agreed to build on the discussions to boost collaboration in trade, technology, energy, defence, agriculture, health, and people-to-people exchanges. The call comes at a time when India is seeking to diversify export markets and reduce overdependence on traditional partners.
The two sides also exchanged views on regional and global issues of mutual interest. Building on these discussions, they reiterated their commitment to take the India-Brazil Strategic Partnership to new heights, as per the statement. The leaders agreed to remain in regular contact.
In response to the additional US tariffs, New Delhi on Wednesday said it would take "all actions necessary" to protect its national interests, after the US imposed an extra 25% tariff on India for continuing to import Russian oil. The move came hours after a failed US effort to end Russia's war in Ukraine.
The external affairs ministry termed Washington's action as extremely unfortunate. 'We have already made clear our position on these issues, including the fact that our imports are based on market factors and done with the overall objective of ensuring the energy security of 1.4 billion people of India," it said.
'It is therefore extremely unfortunate that the US should choose to impose additional tariffs on India for actions that several other countries are also taking in their own national interest. 'We reiterate that these actions are unfair, unjustified, and unreasonable."
Vijay C Roy contributed to this story.