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Indian MSMEs Brace for Impact as US Tariff Pause Nears End
As the July deadline looms, what unites these divergent sectors is a shared call for predictability, clarity, and timely government support.
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With the US's 90-day tariff truce with India set to expire on July 9, Indian micro, small, and medium enterprises (MSMEs) are weighing both the risks and opportunities tied to the possible reinstatement of steep US import duties. India's MSME ecosystem is veiled by a mix of cautious optimism, strategic recalibration, and appeals for robust policy backing.
The US had earlier paused retaliatory tariffs on Indian exports as part of a broader negotiation framework aimed at resolving long-standing trade tensions. But with the pause approaching its deadline, the Indian industry is preparing for multiple scenarios, from calibrated hikes to sector-specific exemptions.
"If the 90-day pause ends on July 9, India could face reinstatement of the 10 per cent base tariff plus a 26 per cent reciprocal tariff," said Bharanidharan Pandyan, joint managing and whole-time director, Quality Power Electrical Equipment Ltd. "However, there are indications from both governments that an interim agreement may be reached to either cap or delay these hikes, particularly for critical sectors like power equipment and clean tech."
According to India Ratings and Research, US reciprocal tariffs will exacerbate stress for Indian MSMEs with moderate to high intensity, especially those with revenues below INR 2.5 billion, as of March 31, 2024. The report highlights that while larger exporters are better cushioned, smaller units are acutely exposed to rising costs, reinforcing Pandyan's caution on scale‑based preparedness.
Pandyan pointed to structural gaps in US manufacturing, particularly in high-voltage power equipment, as a likely reason for a softened stance. "The US lacks domestic expertise and manufacturing capacity in higher voltage power equipment, which means tariffs are more likely to inflate costs rather than curb demands," he noted. This asymmetry, he argued, puts India in a relatively strong position both diplomatically and economically.
That said, Indian MSMEs are not relying on negotiations alone. Many have already started preparing for the impact by doubling down on localisation and innovation. MSMEs in India's clean energy and power equipment space are cautiously optimistic. Larger exporters are better equipped, whereas smaller units depend heavily on timely policy support to stay competitive.
In the textile sector, where India is already a formidable player, the sentiment is more strategically opportunistic. Sammir Dattani, executive director at Sanathan Textiles Limited, sees the situation as a potential inflection point. "With the US-India trade negotiations progressing, there's optimism that textile products from India will see exemptions or reduced rates," he said. "This moment calls for strategic alignment—leveraging India's cost competitiveness while strengthening bilateral trade terms."
Dattani emphasized the role of government schemes such as the Production Linked Incentive (PLI), Remission of Duties and Taxes on Exported Products (RoDTEP), and duty drawback programs in helping MSMEs capture more market share. "Indian textile companies are eyeing an opportunity due to the high US tariffs on competing countries," he said. "The government's support in export incentives and faster refund will be pivotal as preparedness varies across scale."
That variance in preparedness is a recurring theme across sectors. In emerging fields like 3D printing, the stakes are different but no less significant. Rahul Chandalia, co-founder and CEO of WOL3D, said, "The country can expect the tariff resumption rate to be calibrated, likely ranging from 20 per cent to 40 per cent, depending on the product category and its strategic importance."
For technology-driven sectors still reliant on global supply chains, even modest tariff adjustments could disrupt cost structures. Yet Chandalia sees a silver lining. "This move could also promote the development of a stronger local ecosystem, pushing Indian manufacturers toward greater self-reliance in the long term," he noted.
In addition, Moody's Ratings has remarked that India is better positioned than many other emerging markets to withstand US tariffs due to its large domestic economy and low export dependency. It added that India "could benefit from capturing market share from other emerging markets', supporting Chandalia's optimism about India seizing opportunity from shifting global trade flows.
He also stressed the need for policy coherence. "MSMEs are anticipating a measured approach from the government—one that balances the need to promote domestic manufacturing with the realities of current market dependencies," he said. Faster credit access, R&D incentives, and improved ease of doing business will be critical to ensure MSMEs can absorb shocks and pivot effectively.
As the July deadline looms, what unites these divergent sectors is a shared call for predictability, clarity, and timely government support.
