'It's An Embargo, Not A Tariff'

On the surface, the US tariff may seem like a simple duty, but this is far from normal, says Nilesh Shah, MD, Kotak Asset Management. He discusses how the tariff imposition could impact India and what steps the government is taking to mitigate the risks

- By Kundan Kishore

Given the expectation that India would receive special status under Trump 2.0, how do you interpret the imposition of high tariffs?

The tariff is completely opposite to the market's expectations. Ever since Donald Trump was elected as the US President, there was expectation that he would grant a special status to India. External Affairs Minister S. Jaishankar was given a very prominent place at his inauguration ceremony. When Prime Minister Narendra Modi went to Washington, he was also given a grand reception.

On the surface, the tariff looks like a simple duty. But it’s not. But if you now impose 25 per cent tariff and punitive tariff of another 25 per cent, that is an embargo; and whether you raise it from 50 per cent to 100 per cent, it won’t make any difference, because exports won't happen at either.

Which sectors do you think will be hit the hardest, and what's the way forward?

Sectors like gems and jewellery, aquaculture, textiles, and handicrafts are more dependent on the US market. If you impose an embargo, then exports to the US won't be possible and developing export markets in other countries will take time. So, there will be shock.

If this tariff continues for long, these sectors will be impacted, and the secondary effects will hit the banking sector and consumption. That is why, even before the full impact comes, the government is creating a buffer—by offering relief on goods and services tax (GST), improving ease of doing business, and stimulating the domestic economy.

If the negotiations don’t work out in India’s favour and the tariff stays for long, how will that affect the economy?

The market is still hoping this is temporary. Now the focus is shifting back to processes—GST rate rationalisation and process improvement packages, which were introduced to boost consumption and to stimulate the domestic economy.