MSMEs target of US tariffs, vital to India's national security

India's economic growth and export economy greatly depends upon its Micro, Small and Medium Enterprises (MSMEs) and the US trade and tariffs particularly the punitive tariffs for buying the Russian oil directly targeted them. In the context of the newly emerging tariff-geopolitics, securing MSMEs is vital to India's national security.

- VENUS UPADHAYAYA

The MSMEs constitute 40 percent of India's total manufacturing capacity, 40 percent of total exports and 120.6 million jobs--11 million of which were created between 2023 and 2024. They are the backbone of the Indian economy with a 27.3 percent contribution to the country's GDP in 2020-21, 29.6 percent in 2021-22 and 30.1 percent in 2022-23. Their contribution to Indian exports has also risen exponentially from 3.95 lakh crores in 2020-21 to 12.39 lakh crores in 2024-25. The number of exporting MSMEs during this period also increased from 52,849 in FY2020-21 to 1,73,350 in FY2024-25 (upto May 2025).

In total India today has 73.4 million MSMEs and they constitute India's national entrepreneurship base. The Union budget 2025-26 identified four key engines of India's national development-agriculture, investments, exports and MSMEs. This means that they are key to India's economic growth and its becoming the third largest global economy by 2027.

India's next generation GST reforms introduced in September particularly support MSMEs because they incentivise the youth to enter into businesses and initiate their own startups (MSMEs). The lower GST rates under these reforms are expected to cut costs for the MSMEs and increase the tax base.

The US 50 percent tariffs on Indian exports including 25 percent of punitive tariffs for buying Russian oil became effective on August 27. These tariffs substantially hit the Indian exports and the MSMEs took 70 percent share in the sectors impacted. In response the Indian government approved a $5.1 billion package for its exporters last week.

A report by Crisil Intelligence, an industry analytics organization said that textile, diamond and chemical MSMEs are the worst impacted by the US tariffs. Textiles, gems, jewellery and seafood are all labour intensive industries and constitute 25 percent of the total Indian exports to the United States.