India's small businesses scramble to cushion blow from Trump's 50% tariffs

By Ashwin Manikandan and Ira Dugal

MUMBAI, Aug 28 (Reuters) - Tens of thousands of Indian small businesses are scrambling to find new buyers in markets across Europe, Africa and Asia to dull the impact of a 50% tariff on exports to the U.S. that took effect on Wednesday.

Firms also front-loaded shipments earlier in August ahead of the August 27 deadline, sending out existing orders before tariffs were doubled from the 25% import tax imposed by U.S. President Donald Trump in July.

Over 50,000 exporters among India's nearly 60 million small enterprises, spanning sectors including textiles, jewelry and chemicals, face the tariff spike but the government has yet to announce any financial or credit support for those affected.

It has instead urged exporters to find alternative markets.

A survey of export-oriented businesses conducted by India SME Forum, a lobby group of nearly 100,000 small businesses, found that 57% of respondents were looking at using countries in the Gulf region, Latin America, Africa and Britain to re-route shipments or value-added transshipments.

The point would be to identify markets where shipped products could be modified or re-manufactured to obtain a new "country of origin" tag and then export on to the U.S. market.

Another 27% were reviving business with buyers in non-U.S. regions while 16% were looking at outsourcing parts of the orders to enterprises in other countries in order to retain those clients.

"The sense we are getting is that a lot of the times we try to actually sell to the U.S. because we get better pricing. But there are a lot of other markets and it is those markets that are now going to come into focus," said Vinod Kumar, president of the India SME Forum.

"So every supplier, be it medium or small or large, is now relooking at the inquiries they received earlier, which they have not attended to because they had a better offer (in U.S. markets)," he said.

Small and medium-sized businesses constitute a major part of India's economy, the world's fifth largest, contributing about one-third of GDP and 45% of all exports.

FRONT-LOADING TO SOFTEN TARIFF HIT

To cushion the blow from Trump's burgeoning tariff blitz, Indian exporters also front-loaded orders to the U.S. in August.

"We shipped near double our monthly volumes in August and even diverted some orders from European clients to the U.S.," said Sanket Gandhi, director at Ahmedabad-based Pheromone Chemicals, which supplies speciality chemicals used in fragrances to U.S. customers including Procter and Gamble.

Gandhi's two firms, with a turnover of 2.5 billion Indian rupees, are also negotiating with clients in Europe, Russia and Africa as a hedge against its U.S. business while remaining hopeful of a resolution to the tariff standoff with the Trump administration.

“We pushed out most of our U.S. shipments by last week. At 25% tariffs, between us and our customers, we could take the hit and continue our business, but not at 50%,” said N. Thirukkumaran, owner of Tirupur-based apparel maker Esstee Exports.

Export data for August has yet to be released, but HSBC's Flash India PMI showed business activity expanded at the fastest pace in at least two decades this month.

A drop in exports to the U.S., which account for 2.2% of India's GDP, could impact economic growth by 0.6-0.8 percentage points over a 12-month period, economists say. The central bank forecasts growth at 6.5% in the current fiscal year.

A sharp decline in export revenues would also damage banks that are large lenders to small enterprises.

Credit to small and medium-sized enterprises has “dulled in the last few weeks” due to tariff-related uncertainties, a banker with a state-owned lender said.

“The environment is that of caution ... We are holding off on giving new loans to small and medium export-centric businesses that we have not lent to before,” the banker said.

Reuters reported earlier this month that the government plans to offer credit guarantees to small firms and exporters to deter banks from halting fresh lending to these businesses, but it has yet to formally announce any relief.

Outstanding bank loans to small and medium enterprises amounted to 12.3 trillion rupees as of June 2025, about 7% of the total loan book across Indian banks.

($1 = 87.5060 Indian rupees)