India mulls fresh incentives for exporters amid US tariff shock, sources say

India's Prime Minister Narendra Modi and US President Donald Trump

The Indian government is mulling a requirement for any fresh incentives for exporters to help them diversify to key markets after the United States levied 50 percent tariffs on India, sources in the know of the matter said.

“The finance ministry is working on an export strategy scheme, to incentivise diversification for exporters to Europe, UK, Peru, Chile, Argentina, Brazil, one of the sources said, adding that a final call may be taken depending on how talks for a trade deal with the US progresses later this month.

Any fresh incentive will potentially focus on labour-intensive exports and the requirement for the same depend on if and how quickly Washington and New Delhi secure a trade deal potentially lowering the massive tariffs rates, sources said.

“The government may explore incentives for market diversification. Obviously, it will be a good opportunity for India to diversify to other markets. Exporters are already looking at other geographies, it may build in some incentive, but it won't be a blanket compensation,” a second source said.

Given how rapidly, the situation is evolving, the finance ministry has not yet reached “the stage of deciding the amount to be provided for a new incentive scheme,” this source added.

India and the US are negotiating a Bilateral Trade Agreement (BTA), aiming to conclude talks by Fall of this year. However, negotiations have been in a deadlock over agriculture and dairy, sectors that New Delhi rarely opens up through deals with other nations.

Prime Minister Narendra Modi on August 7 said he won't compromise on farmers' interests and is ready to pay heavy price for it, hours after the US imposed an extra 25 percent tariff on Indian exports.

Modi’s comments came a day after the US doubled tariffs on India with an additional 25 percent tax linking it to New Delhi’s purchase of Russian oil.

India is the second-largest purchaser of crude oil from Moscow, after China, accounting for approximately 38 percent of its total imports in the category.

To be sure, in the 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, this scheme is yet to be rolled out.

In a series of meeting with Commerce Minister Piyush Goyal last week, exporters urged the government to incentivise shipments by fast-tracking and restoring various subsidies, including expediting disbursal of funds allocated under the Export Promotion Mission.

At 50 percent, India’s tariff is sharply higher than those meted out by the US to competitors like Vietnam and Bangladesh. This has prompted exporters to scout for alternative destinations for Indian goods.

While, India and the UK have signed a free trade agreement granting zero-duty access to a host of Indian labour-intensive exports, the deal is expected to take a year to be rolled out owing to lengthy ratification processes in Britain.

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