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Business Standard
42 minutes ago
- Business Standard
US tariff impact: Diamonds, shrimps, textiles most vulnerable, says Crisil
Diamond polishing, shrimp, home textiles, and carpets are among the sectors most vulnerable to the adverse effects of the 50 per cent tariffs that the United States (US) plans to impose on Indian imports, Crisil said in a report. The US administration currently levies a 25 per cent tariff on Indian imports. An additional 25 per cent tariff — to take effect two weeks from now as a penalty for India's purchase of Russian crude oil — will take the cumulative additional tariff to 50 per cent. For other sectors such as ready-made garments (RMG), agrochemicals, specialty chemicals, and capital goods, the impact of the 25 per cent reciprocal tariff is likely to be more manageable, given moderate US exposure of 5–20 per cent of overall revenue, and a limited tariff disadvantage that may allow companies to partly pass on the impact to customers. 'Additionally, the move to impose an additional 25 per cent tariff with effect from August 27, 2025, as a penalty for importing crude oil from Russia, will make Indian exports to the US unviable for the aforesaid (diamond polishing, shrimp, home textiles, and carpets) as well as other sectors including RMG, chemicals, agrochemicals, capital goods, and solar panel manufacturing, which have sizable trade exposure to the US,' Crisil said. The 25 per cent reciprocal tariff that came into force on August 7 is higher than that faced by most of India's Asian competitors. Sectors such as diamond polishing, shrimp, and home textiles may see sales volumes decline due to heavy reliance on US trade, while costs will rise due to partial absorption of tariffs, affecting earnings. The extent of the impact will vary depending on sectoral exposure, the ability to pass on incremental costs to customers, and relative tariff disadvantage versus competing nations. 'A potential second-order impact, including a slowdown in US demand and disparate tariffs across nations that could alter global trade dynamics, also warrants close monitoring,' the report said, adding that any potential trade agreement between India and the US in the coming days will bear watching. However, strong corporate balance sheets, potential bilateral trade agreements with other countries, and possible Indian government support for impacted sectors could mitigate the credit impact to some extent, it added. The US is India's largest trade partner and export destination. In FY24, India exported goods worth $86.5 billion to the US, accounting for a fifth of India's merchandise exports. Sectoral Impact Diamond polishing: Exports to the US accounted for about 25% of total revenue in FY25. The tariff will put more pressure on the sector's modest operating margins due to reduced fixed-cost coverage and the need to bear higher tariff costs. US retailers have shown limited willingness to absorb the additional burden. Shrimp: The US accounts for about 48% of revenue for Indian shrimp exporters. India is now one of the highest-taxed major shrimp exporters to the US due to reciprocal tariffs, countervailing duties, and anti-dumping duties. Operating margins will be further eroded due to additional costs and limited pass-through ability, given stiff competition from Ecuador, which benefits from lower tariffs. Home textiles and carpets: Exports account for 70–75% and 65–70% of total sales, respectively, for these sectors. Of this, the US accounts for about 60% of exports for home textiles and about 50% for carpets. While India currently enjoys some tariff advantage against China, the reciprocal tariff will lead to a material decline in revenue and profits, given the limited ability to pass on higher costs for these discretionary products. RMG: Exports to the US form 10–15% of total revenue and will become completely unviable as the tariff structure will be significantly higher than that of competing manufacturers in China and Vietnam. Agrochemicals: Exports to the US account for 11–12% of sector revenue and will face challenges, with China as a key competitor. The ability to divert products to alternative markets such as Latin American countries will be limited by strong Chinese competition in those regions.
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Business Standard
42 minutes ago
- Business Standard
Parliament panel calls for global promotion of Indian leather products
A parliamentary panel has recommended that the government should take proactive measures to promote traditional Indian leather products under 'Make in India' banner to help them achieve global recognition and prevent their imitation by international brands, as in the recent case of Kolhapuri chappals. India's leather industry is highly labour intensive, generating employment for over 4.42 million people, with 40 per cent of them being women. 'The Committee recommends that the department take proactive measures to promote the 'Make in India' brand for traditional Indian leather products. This will help gain global recognition for these products, safeguard the rights of local artisans, and prevent their imitation or misuse by international brands as was reported in the case of Kolhapuri chappals,' the parliamentary standing committee on commerce said. Italian luxury fashion label Prada's Spring/Summer 2026 collection featured models wearing footwear resembling Kolhapuri chappals during Milan Fashion Week in June. It didn't credit India as the source of inspiration. However, in July, a team from the luxury brand visited Maharashtra's Kolhapur to understand the craft of making Kolhapuri footwear. The panel also recommended that the 'Focus Product Scheme for Footwear & Leather Sectors,' announced in the Union Budget, should be finalised and implemented at the earliest with 'unambiguous and practical guidelines'. 'The scheme should take a complete view of the sector by supporting all parts of the value chain, including components, design, and machinery for both leather and non-leather footwear. To make the scheme more effective, the department should set up regular reviews, encourage better coordination between agencies and applicants, and create a support system to address challenges faced during implementation,' the report said. The committee also suggested leveraging existing free trade agreements (FTAs) with Japan, Australia, United Arab Emirates (UAE) and ASEAN to increase export of leather and leather products while also prioritising new trade agreements with key markets such as the European Union (EU). The Export Promotion Mission (EPM) announced in the Union Budget earlier this year's scheme can play a pivotal role in undertaking large-scale export promotion activities in major markets and exploring potential markets, the report said.
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Business Standard
42 minutes ago
- Business Standard
Bond yield rises to 4-month high; OIS market discounts rate cut by Dec
Government bond yields surged by another 5 basis points (bps) on Tuesday as stop-losses were triggered, prompting heavy selling likely led by mutual funds. Dealers said the rise was also weighed down by higher-than-expected cut-off yields at the weekly state development loan (SDL) auction. The benchmark 10-year government bond yield closed at 6.49 per cent — its highest level since April 3 — compared with the previous close of 6.44 per cent. The selloff in the bond market continued despite retail inflation hitting its lowest level in eight years last month. On Monday, the yield on the 10-year benchmark bond had risen by 3 bps. Traders said the relief from softer inflation would be short-lived, given the Reserve Bank of India's (RBI's) projection of a sharp pickup in inflation in the first quarter of the next financial year. The RBI has forecast CPI inflation at 4.4 per cent in Q4 of FY26 and 4.9 per cent in Q1 of FY27, dampening expectations of further rate cuts. Market participants said Tuesday's selling was likely triggered by stop-losses, mainly from mutual funds, and compounded by the higher-than-expected SDL cut-off yields. 'The market perceived the monetary policy committee (MPC) stance as a hawkish pause rather than the expected dovish pause or hawkish cut. This killed any hope of a rate cut in the coming months. On top of that, more than Rs 50,000 crore of central and state government bonds are hitting the market every week,' said Vijay Sharma, senior executive vice-president at PNB Gilts. 'With investment and trading books already under stress, the capacity to absorb fresh issuance is shrinking. There's no expectation of further open market operations from the RBI, so buyers are reluctant to step in,' said Sharma. The biggest puzzle, he said, is that Overnight Interest Swap (OIS) is pricing in at least one rate cut, while the bond market is behaving as if a hike is coming. 'In the end, it all comes down to demand and supply, and right now, supply is overwhelming a market that's already under strain,' he added. While the benchmark bond yield has risen 12 bps so far in August, the five-year OIS rate has fallen 5 bps. OIS rates indicate expectations of at least one rate cut by the MPC before the end of the calendar year. This expectation is driven by factors such as easing inflation and concerns over economic growth, especially on Indian exports due to recent US tariff measures. However, some market participants believe the decline in OIS rates may be more related to expectations of falling US Treasury yields rather than an imminent rate cut by the RBI. They suggest this trend is primarily driven by offshore activities, particularly in response to the US imposing a 50 per cent tariff on certain Indian goods.
