Indian Government Prepares Relief Package for MSME Exporters Facing US Tariff Challenges

Indian micro, small, and medium enterprise (MSME) exporters are actively seeking innovative solutions to mitigate the impact of US tariffs on their businesses. In response to these challenges, the government is now preparing a comprehensive relief package to support these exporters.

Government Relief Package

The government is finalizing a relief package for MSME exporters who are experiencing losses between $45.00-80.00 billion due to 50.00% US tariffs. This package includes:

• Five new schemes based on COVID-era credit guarantees
• Expansion of collateral-free loans from ₹10 lakh to ₹20 lakh
• Easier access to working capital
• Interest subventions
• Measures to unlock equity financing channels
• Sector-specific support for textiles, apparel, gems and jewellery, leather, engineering goods, and agri-marine exports
• Indirect tax reliefs through GST cuts and faster ITC refunds

The initiative aims to ease working capital stress, protect employment, and provide time for exporters to diversify shipments and explore new markets.

Transshipment: A Popular but Complex Solution

A recent survey by the India SME Forum reveals that transshipment through third countries has emerged as a leading strategy, with 57.00% of member enterprises considering this option. Gulf Cooperation Council (GCC) countries, African nations, and the United Kingdom are among the potential intermediary destinations.

Amandeep Budhiraja, representing JustToyz, a company facing a steep 50.00% tariff on handcrafted globes, is contemplating exports through Dubai. Budhiraja is also exploring partnerships with China, despite an anticipated cost increase of at least 20.00%.

Industry experts caution that transshipment is not a straightforward solution. Requirements typically mandate a 20.00-40.00% value addition in intermediary countries, posing significant hurdles for smaller exporters with limited resources.

Diversification and Market Exploration

The survey highlights that 27.00% of MSME exporters are actively seeking non-US buyers, even though this may result in lower premiums. This diversification strategy aims to reduce dependence on the US market and explore new opportunities globally.

Some MSMEs are turning their attention to domestic markets, while others are investigating potential openings in Australia and New Zealand. This shift in focus could help these businesses maintain growth and stability in the face of US tariff challenges.

Outsourcing as a Potential Strategy

A smaller fraction of exporters, approximately 16.00%, are considering outsourcing their production to other countries. This approach could potentially help them circumvent tariffs, but it also comes with its own set of logistical and operational challenges.

Support for Micro Enterprises

Recognizing the particular vulnerability of micro enterprises, the India SME Forum has established a dedicated help desk. This initiative aims to assist these smaller businesses in navigating order cancellations and supply chain disruptions resulting from the tariff situation.

Conclusion

As Indian MSME exporters grapple with the complexities of US tariffs, they are demonstrating remarkable resilience and adaptability. The government's comprehensive relief package, combined with exporters' strategies such as exploring transshipment routes, diversifying markets, and considering outsourcing options, demonstrates a multi-faceted approach to maintaining global competitiveness. Some firms are already utilizing near-shoring through Bhutan and Nepal. The coming months will likely see further innovations and adaptations as the MSME sector continues to navigate these challenging international trade waters.