Tariff threatens India's manufacturing ambitions
NEW DELHI: India's largest shoemaker Farida Group has already staked out the land – a 150-acre plot in southern Tamil Nadu – for a sprawling new export plant.
Then came a blow from Washington: President Donald Trump announced he was doubling tariffs on Indian exports to 50%.
For Farida, which supplies brands like Cole Haan and Clarks and depends on the United States for about 60% of its business, the impact was immediate. New orders stopped. The 10 billion rupee project froze.
'With 25% tariffs, you can still work, you can give some discount, negotiate with the buyer and make some adjustments in your profits,' Rafeeque Ahmed, the company's chairman, said in an interview.
'At 50%, you don't have anything.'
Farida is hardly alone. Trump's move would give India the highest tariff rate in Asia, threatening a manufacturing sector that Prime Minister Narendra Modi has spent a decade trying to build to take on the likes of China.
The 'Make in India' campaign was supposed to lift manufacturing to 25% of the economy. Last year, it stood at just 13% –lower than the 16% in 2015, according to World Bank data.
The last few years did offer glimmers of the future Modi had envisioned.
Apple Inc scaled up iPhone assembly in India, making the country the second-largest smartphone producer after China.
Pharmaceuticals and green tech have also gained ground.
The United States – whose policies and actions accelerated companies' adoption of a 'China Plus One' strategy to diversify supply chains – is now India's biggest export market and one of its top sources of foreign investment.
That progress is suddenly vulnerable. While the tariff hike spares smartphones and pharmaceuticals for now, it puts the rest of India's US$87bil in US-bound exports on the line.
'Forget China Plus One right now. Companies are thinking of India Plus One,' Ahmed said. 'They are making plans to move out of India.'
India's Commerce and Industry Ministry didn't immediately respond to a request for comment.
Trump says the tariff hike is punishment for India's purchase of discounted oil from Russia, which he argues helps fund President Vladimir Putin's war on Ukraine.
But India was the only major economy to be hit with such 'secondary tariffs,' even though China is the largest overall buyer of Moscow's crude.
If the 50% rate holds, Bloomberg Economics estimates US-bound exports from India could fall by 60% and put nearly 1% of gross domestic product at risk.
Without exemptions for pharmaceuticals and electronics, the decline could reach 80%.
Even the earlier 25% rate – already higher than in Vietnam, Malaysia or Bangladesh, was enough to threaten a 30% drop in exports. For comparison, Chinese goods face about a 30% US tariff.
'In addition to the economic challenge, politically it's difficult for Prime Minister Modi that India now pays a higher blanket rate than China,' said Alexander Slater, head of the India practice at consulting firm Capstone.
China is pressing on other fronts as well. Beijing wants to limit tech transfers and equipment exports to India and South-East Asia, aiming to deter companies from relocating production, Bloomberg previously reported.
China's rare earth curbs also hit Indian automakers earlier this year. — Bloomberg
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