India may face excess supply amid global trade shifts: Ind-Ra
Furthermore, the uncertainty on eventual tariffs and the slowing global growth are likely to keep corporates cautious on their investment plans even if there are short-term opportunities. Consequently, monetary and fiscal policies may have to be supportive of growth. Amid the macroeconomic turbulence, the impact on GDP growth may be different than Ind-Ra’s initial assessment of 10 basis points (bps) in FY26, as per a report by Ind-Ra.
With the US imposing a 26 per cent reciprocal tariff on India, the report anticipates a limited direct impact on India. This is despite the broader negative effect on global trade, as India's tariff positioning remains relatively favourable compared to China and other South Asian export competitors like Vietnam, Bangladesh, and Indonesia in sectors such as electronics, textiles, and specialty chemicals. The eventual benefits will remain dependent on overlapping products, approvals required from buyers and overall cost positioning in conjunction with reciprocal and retaliatory tariffs, if any.
“Reciprocal tariffs, while having limited direct impact for India, create uncertainty and the risk of volatility in global markets. The second order impact through supply chain re-orientations and approach towards private investments would be key elements to watch out,” said Rakesh Valecha, senior director, Core Analytical Group.
The reciprocal tariffs imposed by the US are likely to benefit the Indian textile industry, especially the players engaged in export of apparel and home textiles. This is because they will have a competitive advantage over other countries exporting to the US, given the higher tariffs have been imposed on these countries than that on India, added the report.
India (US tariff: 26 per cent) competes with countries such as China (34 per cent), Vietnam (46 per cent), Cambodia (49 per cent), Bangladesh (37 per cent); Sri Lanka (44 per cent) and Indonesia (32 per cent) in the textile space. However, there could be a demand slowdown in the US due to increased landed prices which may lead to a global oversupply scenario and hence, there could be a threat of incremental imports into India.
India may not experience a significant impact from the increased US tariffs on premium products, as the domestic market for such high-priced goods remains relatively small. However, the shift in global supply chains could see competing countries diverting exports to other regions like the European Union. While this presents an opportunity, the Indian textile industry may not be able to capitalise on it immediately due to its limited capacity to scale up quickly. Establishing new facilities and securing approvals from international buyers could take time.
Meanwhile, the report anticipates that Indian exporters of textile yarns and fabrics to competing countries may face pressure, as those nations are likely to see reduced exports to the US amidst a potential economic slowdown.
Unlike textiles, the reciprocal tariffs are likely to have a multi-pronged impact on the chemical sector. The US is India’s largest chemical export destination, accounting for around 14 per cent of India’s $25.8 billion chemical exports in 11 months of FY25 (FY24: 13 per cent; $29.3 billion). Organic chemicals accounted for around 30 per cent of India’s exports to the US while agrochemicals constituted another 20 per cent.
While the tariff imposed by the US would increase the prices of chemicals exported by India, Ind-Ra believes the higher tariffs imposed on key competitor China will improve the competitiveness of Indian chemical exporters, providing them an opportunity to increase their share of business with the US. The resultant increase in consumer prices and inflation could weigh on spending and affect demand in the US, particularly for chemicals used in discretionary segments such as textiles.
Fibre2Fashion News Desk (SG)
