ComMin Working on Short, Medium, Long-Term Steps to Shield Exporters from US Tariffs

The Commerce Ministry is working on short, medium, and long-term action plans, including proposals such as easing norms for SEZ units and allowing an inventory model for e-commerce exports, to help exporters cope with the steep 50% US tariffs, an official said.

The official said that to safeguard the domestic industry and absorb production displaced from exports, the government is considering domestic demand outlets for SEZ and DTA (domestic tariff area) manufacturers that are impacted by order cancellations.

At present, sales from SEZ to DTA are allowed after payment of duties. Units in these zones have requested to allow sales on a duty foregone basis. Exports from these zones stood at USD 176.6 billion in 2024-25.

"Alongside, the inventory model for e-commerce exports would allow third-party facilitation entities to manage compliance and logistics, easing the burden on MSMEs and enabling them to focus on quality and branding," the official said.

For this, the government may have to allow FDI in the inventory-based model of e-commerce for exports purposes as at present 100 per cent foreign direct investment (FDI) is permitted under the automatic route only in the marketplace model of e-commerce, but it is not prohibited in the inventory-based model of e-commerce.

As part of the immediate or short-term response, the government is considering several steps to ease liquidity, prevent insolvencies, and provide greater flexibility for units in SEZs, and promote targeted import substitution, the official said.

In the medium term, the focus will shift towards leveraging India's free trade agreements (FTAs), intensifying buyer-seller outreach, and strengthening GST reforms to enhance competitiveness.

To increase utilisation of these agreements, the commerce ministry is planning intensified outreach on FTA benefits as many MSMEs remain unaware of specific tariff advantages; large-scale buyer-seller meets in India and abroad, and sending exporter delegations to FTA markets like, Australia for apparel, the UAE for gems, and the UK for leather to establish direct relationships with buyers.

India has so far implemented trade pacts with over a dozen countries and regions, including Australia, the UAE, Japan, Korea and ASEAN bloc.

In the long term, the government is committed to building a resilient, diversified, and globally competitive export base, anchored in the export promotion mission (EPM), SEZ reforms, and supply chain resilience initiatives.

It is anticipated that exporters may face delayed payments, stretched receivable cycles, and cancelled orders due to the tariff shock. To prevent working capital stress and protect employment, the government is considering several steps.

The proposed GST rationalisation is expected to generate demand in the domestic market and this has the potential of not only creating opportunities for exporters to sell more in India to cater to this increased demand.

Further, the ministry has prepared a phased export diversification framework in response to US tariffs, mapping critical HS (harmonised system) codes, clusters, and alternate markets.

This strategy is two-pronged - scaling up exports to existing markets like the EU, UK, UAE, Japan, Canada, and Australia; and entering new and untapped markets in Latin America, Africa, Eastern Europe, and East Asia.

"The Government of India is proactively responding with a timely, well-calibrated, and comprehensive multi-tiered strategy designed not only to safeguard Indian exporters but also to strengthen our long-term competitiveness in global markets," the official said.

The USA's 50 per cent tariffs on a wide range of Indian-origin products may affect almost USD 49 billion worth of exports to America, which is over 55% of India's shipments to this market.

While India's overall trade exposure to the US is around 18-20% of merchandise exports, the dependence in certain sub-sectors is high (for example, 60% of carpets, 50% of made-ups, 30% of gems and jewellery, and 40% of apparel exports are destined for the USA).