To cushion US tariff shock, Indian exporters set their sights overseas

High tariffs on India announced last month are likely to put pressure on the margins of companies in these sectors and squeeze revenue. Investment bankers, corporate consultants and lawyers told Mint companies with huge numbers of customers in the US were most likely to speed up their expansion plans there.

Sample this: Raft Garments, a manufacturer of knitwear products in circular knits for men, women and children in Tirupur, Tamil Nadu, exports about 50% of its goods to the US, followed by Europe and the Middle East. It also has a domestic presence. Before the latest tariffs came into effect on 27 August, the company had about half a million pieces, worth ₹5 crore, that were ready to ship but this was put on hold because of uncertainties around the tariffs.

“Since we have a large exposure, we cannot take any decisions on outsourcing production immediately but we are evaluating places like Sri Lanka (which has lower tariffs and is close to India) and other countries to set up factories where we can send our fabric, do the cutting and packaging, and re-export to US,” said Siva Subramaniam, the company’s founder and chairman.

Trouble for textiles, gems & jewellery, seafood

Raft Garments is not alone in this battle. In August, Crisil highlighted that the increased US tariffs would have a significant impact on micro, small and medium enterprises (MSMEs), which account for as much as 45% of India’s total exports. It said textiles, gems & jewellery, and seafood, which account for 25% of India’s total exports to the US, were expected to be hit hardest, along with chemicals, in which MSMEs have a 40% share. However, major sectors including pharma, semiconductors, electronics and IT are still exempt from these tariffs.

Companies operating in areas such as electronic manufacturing services (EMS) and mechanical appliances are also exploring similar remedies to soften the tariff blow. Electronics manufacturers Kaynes Technology, SGS Technology, Avalon Technologies and Amber Group are among the many firms that are evaluating such moves to shield margins, multiple people familiar with the matter told Mint. Even Glass Wall Systems, which provides architectural facade solutions, is looking at setting up a manufacturing plant in the UAE.

Syrma declined to comment, while the others are yet to respond to Mint’s requests for comment.

Dipping their toes

The tariff shock has set off boardroom-level strategy sessions. Earlier this month, Jefferies’s managing director Ashish Jhaveri said companies were gauging the potential impact of the tariffs and recalibrating their approach. “Some companies are evaluating whether to set up plants in the US or diversify their geographic exposure,” he said.

Companies are pursuing a mix of strategies, said Parag Shah, founder and partner at Amara Partners. “The first is to see if they can set up a plant or a manufacturing unit overseas and evaluate which part of the process can be done internationally, depending on factors such as labour and locational advantage. The second is to try and explore joint ventures or acquisitions,” said Shah.

Of the companies that the investment firm is evaluating, Shah cited the example of a manufacturing firm that was looking to set up a back-end facility in Mexico, without disclosing specific details. “The firm is now fast-tracking that to see how it plays out.”

Russell A. Stamets, partner at law firm Circle of Counsels, estimated that the number of manufacturing projects by Indian firms in the US, especially in the automotive sector, has gone up by 10 times over the past six months based on his deals.

Promoters are also setting up manufacturing, bottling or repackaging units in the UAE to avoid tariffs as it has a free trade agreement with India and lower US tariffs.

Even pharma companies, which aren’t directly affected by the tariffs, are looking to counter any potential impact outsourcing parts of their processes such as repackaging or bottling, said Mayur Sirdesai, partner at Somerset Indus Capital Partners, a healthcare-focused fund.

“For instance, some firms may look to manufacture 90% of their products in India, ship them, and then repackage them overseas to beat tariffs. While it’s still early, we’ve seen some long-time traders repositioning themselves in anticipation of such changes.”

Short-term fix or long-term investment?

While many exporters are already exploring various avenues abroad, the broader question is whether this overseas push is entirely a reaction to tariffs or part of a more sustainable, long-term trajectory for Indian manufacturing firms.

Trident Growth Partners, a mid-market investment firm that closely tracks the manufacturing sector, is seeing similar patterns in the companies it evaluates. Although JVs and acquisitions are being explored in areas such as Vietnam, Saudi Arabia and Europe, “these moves are still in flux owing to uncertainties around the rapidly evolving geopolitical situation”, managing partner Atul Gupta told Mint.

“At this stage, the companies we are seeing may look to create a small set-up or an assembly unit to see if it’s economically and financially feasible before making larger investments. Firms are wary of making any knee-jerk decisions and are trying to assess if this is a three to four year thing or sustainable over a many decades,” he added.

Stamets added that the short-term workaround with repackaging may not last long as the Trump administration has shown it is willing to act against such practices, citing the example of China’s solar industry in Malaysia. “People may try it for a while, but there are also plenty of genuine reasons for setting up long-term stable manufacturing operations in the UAE,” he said.

He added that the India-UAE Comprehensive Economic Partnership Agreement (CEPA) signed in February 2022 has been deepening economic and trade relations between the two countries. “The tariffs are just adding fuel to that fire. In the past six months, if X number of companies were setting up per month, that number has gone to 4X post the tariffs. These are not just casual explorations — deals are happening.”

Even in the US, setting up manufacturing units is viable in the long term despite high initial capital expenditure since operating costs can be lower, Stamets said. “Electricity is cheaper, land is cheaper, regulations are easier. Wages are higher, but since labour is only a small component of overall costs, companies still enjoy higher margins,” he added.

Diversifying exports

Meanwhile, companies are also looking at stepping up exports to other places such as Vietnam, the UK and the Middle East to reduce their dependence on the US, India’s largest export partner. India shipped $86.5 billion worth of goods to the US in 2024-25, or 20% of its total merchandise exports of $433.56 billion.

Raft Garments, for instance, plans to increase its exports to Europe (UK, Poland, Italy, Netherlands and Spain) and the Middle East. “Our understanding from this situation is to never depend on one geography. We are considering all these measures as the Diwali season, one of the most important festivals for our labourers, is approaching,” said Raft’s Subramaniam. The company employs about 350-400 people across its two factories, he added.

Mint reported on 9 September that India was aiming to finalise free-trade agreements (FTAs) with Peru, Chile and Mexico to redirect about 20% of the goods it currently exports to the US. In value terms, nearly $17 billion of India’s total exports of $86.5 billion to the US could be redirected to these three markets without major disruptions to supply chains, the report said, citing three people close to the discussions.