Nothing to worry as India can absorb the impact

On March 5, the United States President Donald Trump announced the end of preferential trade treatment for Indian imports in over 3,000 items, after targeting India for higher trade barriers and calling it the tariff king.

The preferential trade regime, which is officially called as the Generalised System of Preferences (GSP), was introduced by the United States in 1974 to encourage certain imports from poor countries. Over 45 years, India has become one of the largest beneficiary of the regime even though the country transformed into one of global economic powerhouses.

Responding to the US decision, commerce secretary Anup Wadhawan said, “Our assessment is there won’t be significant impact on exports and, no significant edge to competitors.”

Based on the information gathered from multiple secondary sources, let’s see how.

According to the Office of the US Trade Representative, “US goods and services trade with India totaled an estimated $126.2 billion in 2017. Of this, US exported goods and services worth $49.4 billion to India, while importing goods and services worth $76.7 billion from India.” This gave a $27.3 billion trade surplus to India in 2017 — the largest surplus that India had with any country in that year. Of the $126.2 billion India-US trade, services make up $51.9 billion and goods contribute the rest of $74.3 billion.

The $76.7-billion Indian exports to the US include 28.1 billion worth services and $48.6 billion worth of goods exports. The services exports contribute $4.4 billion to India’s trade surplus with the United States, while the goods exports make up the rest of $22.9 billion.

Out of $48.6 billion goods that India exports to the United States, it enjoys duty-free entry for up to $5.6 billion of exports or 11.5 per cent of the total Indian exports — which is not a substantial chunk to impact India.

In the absence of the duty-free access, almost 90 per cent of the goods that come under the US preferential trade regime attract import duty of between 0.1 per cent and 8 per cent. So the actual benefit from the preferential trade treatment is a saving of $190 million which translates to a mere 3.22 per cent duty.

The end of the US preferential trade treatment to India would see a three per cent jump in costs of the Indian exporters, which they can easily absorb by cutting their costs in other areas of production.

The government too can soften the impact by fast tracking duty drawback refunds to exporters, which would reduce the working capital requirements and thereby lower the production costs. The US administration move is clearly aimed at supporting the domestic economy but it will not have a significant impact on India.

(The writer is the CEO of integrated healthcare provider CallHealth)