a day ago
Small exporters are most at risk from Trump's tariffs. India weighs relief
New Delhi: The government is weighing short-term measures, including interest relief and bridge loans, to small exporters as US tariffs increase costs, eroding their competitiveness, said two people aware of the matter.
Public sector banks with significant exposure to export credit have been asked to identify steps that can be implemented quickly to prevent margin erosion and losses for micro, small, and medium-sized enterprise (MSME) exporters, the people said on the condition of anonymity.
'It is being examined whether the government can work with banks to offer exporters discounts on interest payments through interest-rate realignments or waive processing fees," the first person said. 'Banks may also consider bridge loans by extending repayment tenures for exporters with strong credit profiles, and bridge financing could be extended to firms with a proven track record."
The urgency follows US President Donald Trump's decision to impose an additional 25% penalty tariff on Indian imports over New Delhi's continued purchases of Russian oil and arms, taking the total duty on most goods to 50%. Unless a breakthrough is reached during the ongoing 21-day negotiation window, the new duties will take effect on 27 August.
Meanwhile, lenders with a strong overseas presence could also help exporters find new buyers and enter alternative markets, the second person quoted earlier said, requesting anonymity. 'The government is in discussions with industry representatives and banks to identify possible interventions."
'Exporters have also been encouraged to flag other support measures," the person added.
A finance ministry spokesperson did not respond to emailed queries.
Moody's has warned that the tariffs could undermine India's manufacturing ambitions in high-value sectors such as electronics, potentially reversing recent investment gains.
In a report last week, the rating agency said India faces a difficult choice: continue sourcing cheaper Russian oil and risk losing competitiveness in its largest export market, or curb purchases to avoid tariffs, potentially driving up oil prices, accelerating inflation, and widening the current account deficit.
Experts said the steep U.S. tariffs will hit labour-intensive, MSME-driven sectors the hardest, with rates as high as 50% on textiles, marine goods, gems and jewellery, and chemicals. This could make Indian exports less competitive globally, enabling Vietnam and Bangladesh to gain at India's expense, and putting millions of jobs at risk in the apparel, footwear, and seafood sectors.
Export orders are already being paused or cancelled due to higher landed costs.
'In the short run, it is necessary to provide relief to the exporters. I believe that within 2-3 years, the exporters will find alternate global markets or will create a domestic market," said Ramendra Verma, Partner, Grant Thornton Bharat.
With the US market becoming uncompetitive, Verma said, MSMEs will need to redesign products, develop new supply chains, and expand distribution. 'This will require access to capital and innovative financing to suit the change in the business scenario. Banks are also exploring collateral-free lending and customised credit scoring models for MSMEs."
Alternative markets to the US could include Europe, ASEAN, Africa, and the Middle East.
'Banks can play a major role in supporting MSMEs by offering interest-free or low-interest loans, loans without collateral, and letters of credit or bank guarantees at lower rates. Since limited access to finance is one of the biggest hurdles for MSMEs, such measures can significantly strengthen their ability to compete and grow," said Vimal Pruthi, partner, International Trade, EY India.
'MSMEs should work with the government to find and grow sales in other countries," he said. 'The 'Source from India' platform, which was expanded in June 2025, helps MSMEs reach global buyers by creating online pages to showcase their products and certifications."
