In a stark indicator of escalating trade tensions, India’s merchandise exports tumbled by 11.8% in October, marking the steepest monthly decline in over a year and directly linked to the recent hike in US tariffs on imported goods. The Ministry of Commerce and Industry reported that total exports fell to $32.4 billion from $36.7 billion in the same month last year, with petroleum products and gems facing the brunt of the downturn. This sharp contraction underscores the vulnerability of India exports to global trade barriers, particularly the US tariffs imposed under the latest protectionist policies aimed at safeguarding American manufacturing.
Petroleum Exports Hit Hardest by Tariff Surge
The petroleum sector, a cornerstone of India exports, witnessed a devastating 25% drop in October, plummeting to $4.2 billion from previous highs. Refined petroleum products, which account for nearly 15% of India’s total merchandise outflows, have been prime targets of the US tariffs that jumped to 15% on select energy imports. Industry analysts point to the Biden administration’s strategic push to reduce reliance on foreign oil amid geopolitical uncertainties as the primary catalyst.
“The tariff hike has distorted market dynamics, making Indian petroleum less competitive in the US, our second-largest export destination,” said Rajesh Kumar, director of the Petroleum Export Promotion Council of India (PEPC). He highlighted that while alternative markets in Europe and Asia absorbed some volumes, logistical costs and currency fluctuations exacerbated the losses. For context, India exported over 5 million tonnes of refined products to the US in the fiscal year 2023, but October’s figures suggest a potential 20% annual shortfall if tariffs persist.
Beyond numbers, the ripple effects are felt across refineries in Gujarat and Maharashtra, where production adjustments have led to temporary layoffs. A recent survey by the Federation of Indian Petroleum Industry (FIPI) revealed that 60% of exporters in this sector are reevaluating supply chains, with some pivoting to domestic consumption or exploring free trade agreements with ASEAN nations to offset the US tariffs’ impact.
Gems and Jewelry Sector Faces Mounting Challenges
Equally battered, the gems and jewelry industry saw exports contract by 18% to $1.8 billion in October, as US tariffs on luxury goods escalated to 12%. This sector, renowned for its artisanal craftsmanship from hubs like Surat and Jaipur, contributes over 7% to India exports and employs millions in the unorganized economy. The tariff escalation, part of broader US measures against perceived unfair trade practices, has priced out Indian diamonds and gold jewelry from American shelves during the peak holiday season.
Quoting Gem and Jewellery Export Promotion Council (GJEPC) Chairman Vipul Shah, “US tariffs are not just numbers; they threaten the livelihoods of 5 million artisans. We’ve seen a 30% dip in orders from US retailers, forcing us to seek new avenues in the Middle East and Europe.” Data from the council indicates that the US accounts for 40% of India’s gems exports, valued at $10 billion annually, making the October slump a warning signal for the entire value chain—from mining to polishing.
To mitigate, the Indian government has initiated subsidy schemes worth ₹500 crore for technology upgrades in gem processing, aiming to enhance value addition and reduce dependency on tariff-sensitive markets. However, experts warn that without bilateral negotiations, the sector could see a prolonged recovery, potentially shaving 2-3% off India’s GDP growth through indirect effects on related industries like textiles and handicrafts.
Core Manufacturing Sectors Grapple with Trade Disruptions
Beyond petroleum and gems, core manufacturing segments like engineering goods and chemicals experienced a collective 10% decline, pushing total non-oil exports down to $28.2 billion. The US tariffs, which now encompass a wider array of industrial products under Section 301 of the Trade Act, have inflated costs for Indian exporters, eroding profit margins in a competitive global landscape. Trade data shows that shipments of iron and steel products to the US fell by 14%, while pharmaceuticals—ironically a bright spot with only a 2% dip—highlighted the uneven impact across sectors.
Economist Dr. Arpita Mukherjee from the Indian Council for Research on International Economic Relations (ICRIER) noted in a recent interview, “The US tariffs are reshaping trade flows, with India facing a double whammy of higher duties and retaliatory measures from other partners. This could widen our trade deficit to $200 billion by fiscal year-end if unaddressed.” Her analysis aligns with World Trade Organization (WTO) reports, which flag rising protectionism as a threat to developing economies like India, where exports drive 20% of GDP.
Government responses include diplomatic overtures at the WTO, where India has lodged complaints against the unilateral tariff impositions. Domestically, the Production Linked Incentive (PLI) scheme has been expanded to bolster manufacturing resilience, with allocations of ₹1.97 lakh crore targeting sectors vulnerable to US tariffs. Yet, small and medium enterprises (SMEs), which constitute 45% of exporters, struggle with compliance costs, leading to a 15% rise in insolvencies reported by the Confederation of Indian Industry (CII).
Broader Implications for India-US Trade Dynamics
The October export slump has intensified scrutiny on India-US trade relations, which have been strained since the tariffs were announced in September as part of the US Inflation Reduction Act’s supply chain localization efforts. Bilateral trade, valued at $190 billion last year, now risks imbalance, with India’s imports from the US rising 8% due to defense and tech deals, while exports lag. This asymmetry could fuel calls for reciprocal measures, potentially escalating into a mini trade war.
Stakeholders from the US-India Business Council (USIBC) emphasize dialogue, with President Atul Keshap stating, “Tariffs hurt both sides; collaborative frameworks like the iCET initiative can unlock opportunities in semiconductors and renewables, offsetting losses in traditional sectors.” Indeed, while petroleum and gems suffer, emerging areas like IT services and renewables show promise, with India exports in green energy tech up 12% year-on-year.
Globally, the downturn affects supply chains, as Indian petroleum reroutes to Europe amid the Ukraine crisis, potentially inflating energy prices worldwide. For gems, shifts to Dubai and Hong Kong hubs could fragment markets, impacting jewelry prices for consumers everywhere.
Outlook: Navigating Recovery Amid Policy Shifts
Looking ahead, India’s export recovery hinges on upcoming trade negotiations and domestic reforms. The government aims to boost non-traditional markets through FTAs with the UK and EU, targeting a 15% growth in exports by March 2024. Finance Minister Nirmala Sitharaman announced in her recent budget speech additional export credits of ₹2 lakh crore to cushion sectors hit by US tariffs.
However, challenges persist: The rupee’s volatility against the dollar, combined with global slowdown fears, could prolong the slump. Analysts forecast a modest rebound in November if holiday demand revives gems exports, but petroleum remains precarious with OPEC+ production cuts looming. Long-term, diversifying beyond the US— which absorbs 18% of India exports—into Africa and Latin America is key, potentially stabilizing trade volumes at pre-tariff levels by 2025.
In this fluid environment, exporters are urged to adopt digital tools for market intelligence and sustainability certifications to appeal to tariff-weary buyers. As India positions itself as a counterweight to China in global supply chains, the October data serves as a pivotal moment to recalibrate strategies, ensuring resilient growth in the face of protectionist headwinds.
