Exporters seek swift tax refunds, interest aid as diversification from US market at least 6 months away

Trump on July 30 announced 25% tariff on India

Exporters have urged the Indian government to incentivise shipments to the United States by fast-tracking and restoring various subsidies since it may take at least six months for Indian goods to diversify to other markets like Europe and Britain, sources told Moneycontrol.

This comes after US President Donald Trump levied a 25-percent tariff on Indian goods, higher than the rates meted out to competitors like Vietnam and Bangladesh. The steeper duties are expected to sharply hit India’s labour-intensive exports to America such as textiles and leather.

During a series of meetings held by Commerce Minister Piyush Goyal between August 2 and 3, exporters urged the government to expedite the release of funds under the Export Promotion Mission, ensure faster disbursal of claims under the Integrated GST, and reinstate the interest subvention scheme, which was discontinued in December 2024.

“Particularly exports to the US need to be incentivised so that exporters can get breathing time since it will take at least six months to accommodate other markets,” one of the sources said.

Especially sectors like textiles need hand-holding until such time when exports can be diversified or tariffs are reduced through a trade deal between India the US, this source said.

While, India and the US are currently negotiating for a trade deal, talks for a mini-version by August 1 to dodge Trump’s reciprocal tariffs seemingly failed. The deadline for a Bilateral Trade Agreement (BTA) is Fall of this year.

Sources said India continues to negotiate with the US for a deal to lower the tariff rate imposed on the country, but will stick to red lines when it comes to dairy and agriculture.

In the Union Budget for 2025-26, the Finance Ministry had allocated Rs 2,250 crore towards the Export Promotion Mission, with an aim to boost India's MSME sector.

However, the government hasn’t released any funds through the scheme yet, sources said.

“In December 2024, interest subvention was discontinued. We are seeking for a 5-percent interest subvention, without a cap like Rs 50 lakhs earlier since it will help MSME exports,” the first source said.

The interest subvention scheme earlier provided a 3-percent subsidy to micro, small and medium enterprises on pre-shipment and post-shipment export credit in a bid to increase the competitiveness of Indian exports.

While, New Delhi may be looking to tap alternate markets to dodge Trump’s tariffs, exporters have warned the government that this may take time since the free trade agreement with the UK may take a year to be operational, which grants zero-duty access to a host of Indian labour-intensive exports, sources said.

“UK FTA is only by end of this year, but that’s a good alternative. Europe too, if the EU deal is signed by end of this year, but given the number of countries in that bloc, it will take more time to get that passed. Therefore, government can hand-hold exporters who send shipments to the US by bridging the gap between tariffs on India versus competitors.”

India and EU are currently negotiating an FTA, the deadline for which is end of this year.

A 25-tariff imposition is a setback for India’s apparel industry, because we are now less competitive compared to Bangladesh and Vietnam, who have lower rates,” Kumar Duraiswamy Joint Secretary Tiruppur Exporters Association told Moneycontrol.

“Buyers were waiting to release orders before the new tariff structure from the US but now there is a high tariff and over and above there is an unclear penalty. Buyers are reluctant to come to us. Everyone was hoping will get lower tariffs via a trade deal,” Duraiswamy said.

Tiruppur contributes 68-percent to India’s overall exports of knitwear garments with close to 50 percent of shipments bound for the US. “Now that we are 5-percent higher than our competitors, we have put forward details to the Union government to mitigate issues,” he said.

Trump’s steeper tariffs on India can also trigger job losses in labour-intensive sectors.

“If the tariff structure remains the same, the textile sector can see job losses in another three to four months and risks factory closures since many of them only depend on exports to the US, the first source said.