Govt working on various scenarios to counter possible fallout of tariffs

New Delhi: The Commerce Ministry is working on different scenarios to assess the possible fallout of reciprocal tariffs to be imposed by the US administration on April 2 on its key trading partners including India, sources said.

US President Donald Trump has said that April 2 will be ‘Liberation Day’ as he plans to announce tariffs or import duties to bring down America’s trade deficit, and promote the country’s manufacturing.

India and the US are also working on a bilateral trade agreement to promote two-way commerce and investments.

The domestic industry and exporters have raised concerns over the possible impact of the US’ reciprocal tariffs on India’s exports as the duties could make the goods uncompetitive in the global markets. The US is the largest trading partner of India.

While responding to questions in the Oval Office on Monday, Trump said India will be “dropping its tariffs very substantially”. “I heard that India, just a little while ago, is going to be dropping its tariffs very substantially. I said, why didn’t somebody do this a long time ago. A lot of countries are going to be dropping their tariffs... If you look at the European Union on cars, the European Union already dropped their tariff to 2.5 per cent. It was announced a couple of days ago. A very small tariff. The US charged very little,” Trump said.

Just a few hours before Trump’s comments, the White House said India imposes a 100 per cent tariff on American agricultural products.

Sources in New Delhi on Tuesday said that the impact of the US tariffs may vary from sector to sector and the ministry is preparing different scenarios.

These scenarios would be important to help domestic companies deal with these duties as it is still uncertain about the quantum and the manner in which the US is planning to impose the tariffs.

According to the US Trade Representative’s (USTR) National Trade Estimate (NTE) Report 2025, India maintains “high” import duties on a wide range of American goods such as agricultural items, drug formulations, and alcoholic beverages, besides imposing non-tariff barriers.

The Indian industry and government officials are uncertain about the quantum of these duties. It is still unclear how the tariffs will be applied - whether at the product level, sector level, or country level, another source said. Currently, US goods face a weighted average tariff of 7.7 per cent in India, while Indian exports to the US attract only 2.8 per cent, leading to a 4.9 per cent difference. Indian farm exports to the US currently face a 5.3 per cent duty, whereas US farm exports to India face a much higher 37.7 per cent, creating a 32.4 per cent gap.

Trade experts said that at the broad sector level, the potential tariff gaps between India and the US vary across the sectors.

The gap is 8.6 per cent for chemicals and pharmaceuticals, 5.6 per cent for plastics, 1.4 per cent for textiles and clothing, 13.3 per cent for diamonds, gold, and jewellery, 2.5 per cent for iron, steel, and base metals, 5.3 per cent for machinery and computers, 7.2 per cent for electronics, and 23.1 per cent for automobiles and auto components. The higher the tariff gap, the worse affected a sector will be, think tank GTRI Founder Ajay Srivastava has said.

India’s exports to the US span 30 sectors, with six in agriculture and 24 in industry, each facing different tariff impacts.

Experts have stated that agri sectors which could be impacted more due to the imposition of reciprocal tariffs include fish, meat, processed seafood, shrimp, sugar, cocoa, rice, spices, dairy products, edible oils, wines, and spirits.

Similarly, industrial goods which could attract these duties and may get impacted include pharmaceutical sector, diamonds, electrical and telecom equipment, machinery, boiler, turbine, computer, certain chemicals, textiles, fabrics, yarn, carpets, tyres, and footwear.

Further, sources said that Indian companies too have flagged certain non-tariff barriers which they face in the US.

The barriers include the US banning export of wild-caught shrimp from India on the grounds that Indian trawler vessels were not using Turtle Excluder Devices; private standards of American companies; and high registration costs for sectors like pharma.