Why India's basket of exports to the US could look different

Tarun Arora, director, IG International Pvt Ltd is a worried man. A proposed retaliatory tariff hike by New Delhi from August 4 on apples imported from the US can topple his apple business cart.

As Washington exerts pressure on India to reduce trade surplus with it, one of the ways India is looking to hit back is by raising tariff on US apples to 75%, from the current 50%, starting next month.

Arora says if the government goes ahead with imposing higher import duty on American apples, it can bring down US apple imports by 50% to 80,000 tonne from the current 1.6 lakh tonne. It could also see apple importers turning to countries in Europe, Latin America and others, which are not likely to face tariff restrictions from India. 

“US imports (of apples) could go down by 50% (due to higher tariff). It (US) could be replaced by countries in Europe, Latin America or others. It would be interesting to see how the overall (US) volumes reduce. Most of apple importers have refrained from ordering (from US), considering tariffs are going to go up,” Arora informed DNA Money. 

Today, more than half of the 2.5-lakh tonne of apples imported is from the US. This could change if US persists with its bullying trade tactics.

As US intensifies its trade war and the rupee value against dollar slips, Indo-US trade experts say India's basket of exports to the US could look different even as it diversifies its import base of many products. Experts believe US tariff restrictions may not dent overall export growth in a major way but could see a shift in export dynamics.

Ajay Sahai, director general & CEO, Federation of Indian Export Organisations (FIEO), said that as US conducts global trade with an iron fist, India’s export growth has been eroding in the recent past.

According to Sahai, India’s exports to US rose 5.7% while imports grew 18.7% in the current year so far. Similarly, services exports grew 7% and imports by 12%.

“In one way, it helps India to reduce trade surplus and therefore to some extent we are taking care of some of the concerns of the US. If US imports are growing at faster pace than its exports then (US’s) trade deficit (with India) will come down,” he said.

Last year, India had a trade surplus of $27 billion with the US. This has riled the Trump administration, which wants to swiftly reduce its trade deficit with India. 

A close look at the ministry of commerce’s data on India’s US trade shows that the country’s US exports growth has consistently declined till May. It fell from 21.49% growth rate in January to 19.50% in February, 14.75% in March, 13% in April and 11.38% in May.

Interestingly, the same period saw US imports rising, in general. It climbed up from 29.26% in January to 36.93% in February, then dipped a little to 32.50% in March, only to further plunge to 19.99% in April and then jump by 38.38% in May.

Sahai, who is part of the team holding discussions with the US embassy on India-US trade imbalance, said India has pointed out to the US ambassador that its share in the US’s total goods imports was around 2% and 5% in services.

In contrast, US’s share in India’s goods imports was 5% and 15%, respectively in services imports.

“This means US was commanding much more share in India’s imports but since the size of US economy is big, India’s share is relatively less,” he emphasised.

Currently, US exports contributes around 15% to India’s total exports.

The FIEO executive believes US imports of Indian goods may seem propped up because of the absence of Generalised Scheme of Preference (GSP), which offers concessional tariff on exports to the US. He, however, said such an assumption was “at an empirical level” and evidence had still to be established.

Sahai said a weaker rupee was creating an optical illusion that Indian exports could benefit from it. In reality, though, currencies of many other countries had depreciated at a faster pace and therefore could pip India in the exports race. Additionally, some of these countries also enjoy tariff exemption on certain products from Washington because of their favourable trade balance with US. 

“When it comes to metals or agricultural products (to the US) we are facing a stiff competition from Latin American countries as their currencies have depreciated very sharply in the recent times. Secondly, when it comes to steel and aluminium, they have also got exemption from increased tariff, which is not the case with India,” he said. 

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Another development, which could tilt India’s trade balance with the US in favour of Uncle Sam is WTO’s final interpretation of the US complaint against India’s certain export subsidy schemes. Most believe it could go in favour of the US.

Sahai said India must quickly work out a fall-back strategy and should be prepared for any adverse outcome rather than rush to save the situation at the “last minute hour”.

However, despite the headwinds, Sahai believes US will continue to be an important market for India’s traditional exports like apparel, textile, marine and agricultural commodities and others such goods. He projects India’s exports to US to grow at 10% with pharma and marine goods showing “impressive” growth rate.

He feels diversification of import base of products like oil and others could also assuage US’s insecurity over its widening trade deficit with India.

“US is entering oil market and India is diversifying its oil import base. We may import more oil from the US. That is not ruled out,” he said. 

Sahai believes any increase in imports from the US will be at the cost of some other partner countries of India, unless it expands its overall imports. 

“If Indian imports from the US increases, it will be at the cost of some other partner country. Unless the economy requires more imports. For example, the import India could have taken from China could now come from the US, or it could be otherwise,” he said.

Source: DNA