Exporters on the Brink: How Indian MSMEs Are Bracing for a 25% U.S. Tariff Tsunami

India’s exporters, particularly the lifeblood of our export economy—the MSMEs—are staring at a sharp storm on the horizon: the United States is set to impose a 25% tariff on Indian goods, a move that threatens to upend already fragile supply chains, wipe out profit margins, and potentially derail India’s $450+ billion export economy.

But beyond the macro numbers lies a more human, urgent story: small businesses gasping for relief.

The MSME Distress Signal

For a small apparel exporter in Tirupur or a seafood unit in Kochi, this tariff hike isn’t just a line in the budget—it’s the line between survival and shutdown.

“Exporting to the U.S. has become like running a race with a boulder on our back,” says N. Ravi, a third-generation textile exporter from Tamil Nadu. “My bank charges 11% interest on export finance. Bangladesh and Vietnam exporters pay just 3–5%. Now add a 25% U.S. tariff? We simply can’t compete.”

Ravi’s story echoes across industrial hubs from Morbi’s ceramics to Ludhiana’s garment factories. The Federation of Indian Export Organisations (FIEO) has stepped in, requesting urgent government action to revive and expand the Interest Equalisation Scheme (IES)—a critical tool that offers subsidised interest on export loans, especially for MSMEs.

What MSMEs Are Asking For

1. Revival of Interest Relief (IES):
   MSMEs want the IES not just reinstated, but enhanced—from a 3% subsidy to a 5% rate—to counter interest differentials with competing nations like Vietnam, Malaysia, and China.

2. Fast-Tracked Export Promotion Schemes:
   The ₹2,250 crore Export Promotion Mission (EPM), though announced, hasn’t yet seen rollout. Exporters want immediate disbursal of funds under RoDTEP and RoSCTL for faster refunds and liquidity infusion.

3. Tariff Compensation Mechanism:
   FIEO suggests an emergency support mechanism to directly offset the new tariff burden—akin to a PLI-style incentive but tailored for labour-intensive sectors like textiles, engineering goods, marine exports, and handicrafts.

4. Customised MSME Export Support Cells:
   MSMEs seek handholding in navigating the turbulent regulatory waters ahead, from paperwork to compliance advisory. “Give us guidance, not just announcements,” pleads Firoz Ali, who exports leather goods from Kanpur.

Why It’s Urgent: The Clock Is Ticking

Global buyers are already reacting. Orders are being paused, renegotiated, or outright cancelled. Exporters report buyers from the U.S. are seeking steep discounts, often unsustainable for smaller units already stretched thin by high input costs and delayed GST refunds.

If corrective measures aren’t taken swiftly:

• Apparel exports may fall by 30–40% in FY26.

• Marine product shipments could decline by 20%, impacting coastal livelihoods.

• Thousands of MSMEs employing lakhs could shut shop or turn to the unorganised economy.

The Larger Battle: Surviving Global Competition

India is not alone in the ring, but it might be entering the match blindfolded.

Vietnam’s exporters enjoy zero-tariff access under its trade pact with the U.S. China offers subsidised loans at 3.1%. Malaysia and Bangladesh provide soft credit and tax breaks to their exporters. Indian MSMEs, in contrast, face double-digit loan rates and policy bottlenecks.

“If we can’t match them in price, we must match them in policy,” says Ramesh Sharma, a Pune-based engineer-turned-exporter. “Interest relief and better refunds won’t just keep us afloat—they’ll help us grow.”

The SMEStreet Take: From Survival to Revival

India’s MSMEs are not seeking handouts—they’re demanding a fair fight.

In the face of geopolitical shocks, shifting trade dynamics, and inflationary stress, our small exporters remain agile, innovative, and determined. But grit alone can’t fix systemic gaps.

The road ahead demands policy urgency, not passive optimism.

• Expedite the rollout of EPM.

• Enhance and notify Interest Equalisation immediately.

• Offer tariff-adjustment mechanisms for vulnerable sectors.

In an increasingly protectionist world, India’s export-led growth story can only survive if the MSME engine is oiled, empowered, and unleashed.