Government initiative imminent, aimed at helping export sector navigate challenges posed by US tariffs crisis
The Indian government is taking active measures to address the liquidity crisis that has been affecting various sectors, with a focus on easing financial constraints, preventing insolvencies, and supporting exporters.
In a phased approach, the government is considering short, medium, and long-term strategies. The immediate objective is to provide liquidity relief, maintain employment in vulnerable sectors, and build supply chain resilience through structural reforms.
One of the key measures under consideration is the rationalisation of the Goods and Services Tax (GST) rates. The Apex GST Council is scheduled to meet next week to introduce GST 2.0 reforms, aiming to reduce tax rates and compliance burdens.
The government is also drawing inspiration from its pandemic response, including the Emergency Credit Line Guarantee Scheme (ECLGS). New schemes will be suitably modified to address the different nature and magnitude of the current crisis compared to the 2020-21 pandemic period.
Delayed payments, cancelled orders, and working capital stress are identified as the most pressing challenges for Indian exporters. Beyond liquidity support, the government plans to leverage existing trade agreements, create new market access opportunities, and support exporters with non-financial enablers including market access initiatives, branding support, export compliance assistance, and capacity building.
The government is also addressing the impact of the US tariffs, with an assessment aligning with an EY report published by HT on Thursday. According to the report, with appropriate countermeasures, the impact of Trump's 50% tariff could be limited to 0.1% of GDP.
Indian government officials are considering accelerating overdue reforms, including a comprehensive overhaul of the consumption tax, and are also discussing measures to support sectors like textiles and footwear that are likely to be strongly affected by the increased US tariffs to help exports amid the liquidity crisis caused by these tariffs.
The Indian economy grew 7.8% in the quarter ending June, the highest in five quarters, underlining strong domestic growth despite mounting external headwinds from US tariffs. Officials emphasised that the response to the liquidity crisis would be calibrated based on evolving market conditions and stakeholder feedback.
Final details of the measures to address the liquidity crisis are expected to be announced once consultations with industry bodies and export promotion councils are completed. The government plans to provide Covid-style liquidity relief measures, as well as medium and long-term strategies for market diversification and global supply chain integration.
Officials stated that India's economy remains resilient due to its domestic strength, with merchandise exports accounting for a moderate share (10.4%) of GDP ($4.12 trillion). The government expects to announce support packages soon to address the liquidity crisis and support the economy's continued growth.
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