Tariff Fluctuations Significantly Impact MSMEs in India's Export Sectors

Tariff fluctuations have created challenges for MSMEs in industries like auto components, engineering goods, and steel. These sectors typically operate with margins between 5-8%. A shift of 10-12% in import or export duties can reduce net margins by up to 40%, leading to unpredictability in pricing, sourcing, and delivery commitments.

On June 4, 2025, tariffs on steel and aluminium, including derivative products like pipes and screws, increased to 50%. Initially, these were set at 25% under Section 232 in March. Additionally, a 25% tariff on imported vehicles and auto parts was introduced in late March 2025. Vehicles built in the U.S. received a temporary offset of 3.75%, which will decrease to 2.5% after a year.

India faces a 27% "reciprocal" tariff on engineering goods targeted for U.S. imports. This includes machinery, electrical goods, steel-derived products, and auto components. The U.S.'s higher tariffs on steel and aluminium imports have affected India's exports of engineering products. The Engineering Exports Promotion Council (EEPC) estimates a potential negative impact of $4-5 billion on Indian exports.

Although it might seem that India is severely affected by the new U.S. tariffs, most major exporting nations face the same 50% duty structure. India is not uniquely disadvantaged; the UK is an exception with a preferential rate of 25%, but it cannot absorb displaced global volumes. This levels the playing field for India.

The government suggests the impact may be minor, but recurring tariff shocks are reshaping sourcing strategies and export margins. This is especially true for MSMEs and mid-sized exporters. "Many MSMEs have reported cost overruns of up to 15% and shipment delays of 2-3 weeks during periods of tariff flux," said Sunil Kharbanda, Co-founder & COO of Trezix.

MSME-heavy sectors like auto components and engineering goods face near-term volume pressures due to higher landed costs in the U.S. However, these sectors are resilient with diversified markets and growing non-U.S. demand cushions.

Strategic Shifts in Manufacturing

"India's manufacturing ecosystem, especially MSMEs, has been steadily improving its value chain positioning," said Utkarsh Sinha, Managing Director at Bexley Advisors. This shift from commodity exports to higher precision products provides insulation from price-driven trade pressures.

Despite potential demand lags for Indian exporters, the long-term outlook remains strong. "The present tariff regimes are inherently political and fluid," added Utkarsh Sinha. India's deeper bilateral ties position it well for a rebound once current conditions stabilize.

Future Prospects for MSMEs

Sectors with strong domestic order books and government support are likely to outperform amid volatility. Pure-export MSMEs may need to redirect their sales pipelines toward high-growth regions like the Middle East and Africa.