MSME-dominated sectors brace for fallout of US tariff hike: Bank of Baroda Report

The report warns that Indian companies operating in the affected sectors may face margin pressures

India’s micro, small and medium enterprise (MSME) sector, especially those operating in electronics, precious stones, machinery and readymade garments, could face mounting challenges following the United States’ decision to impose reciprocal tariffs on imports. These MSME-heavy sectors may require government support to cushion the impact of the new US tariff regime, according to an analytical report by Bank of Baroda.

“The sectors which are likely to be impacted most are electronics, precious stones and machinery besides readymade garments,” Aditi Gupta, economist, Bank of Baroda, said in the report assessing the implications of Washington’s latest tariff move. “Further, since these sectors have a high concentration of MSMEs, the sector may face increased challenges, requiring possible government support.”

The United States recently imposed higher tariffs on over $18-billion worth of Chinese imports, covering critical items such as electric vehicles, solar cells, semiconductors and batteries, as part of a broader effort to de-risk supply chains and curb strategic dependence on China. While the primary target is China, Gupta’s report points out that India, though not directly hit, could still feel the heat.

Credit Risk Under Watch

The report warns that Indian companies operating in the affected sectors may face margin pressures due to either declining export turnover or the need to slash prices to maintain competitiveness in global markets. “Profitability of companies in these sectors would need to be monitored... This is something which banks would also need to monitor given their exposures to these sectors,” Gupta noted.

India is not among the top ten sources of US imports for most of the affected product categories—suggesting that the direct impact may be limited. “Overall, the direct impact of higher US tariffs on India looks fluid as of now. As higher tariffs have been imposed on all countries, the disadvantage for India could be muted to an extent,” the report states.

With MSMEs contributing nearly half of India’s exports, policymakers are likely to keep a close watch on the spillover effects of the tariff changes. “The government may be expected to come out with special schemes to buffer this impact,” Gupta said in the report, pointing to potential fiscal or credit-based relief for small businesses in vulnerable sectors.