While concerns over reciprocal tariffs by the US have kept a tight grip on the stock market, the impact of this on the agri space may not be very significant. According to the WTO (2024), the tariff imposed by India on agri inputs from the US works out to a simple average rate of 17 per cent, compared with about 3.3 per cent imposed by the US. The trade weighted average tariff by India is at 12.2 per cent vs 2 per cent.
While the US wants India to open up its agri market, there are challenges in doing so. Though, over the last three decades, the share of agriculture in the country’s overall GDP has halved from about 30 per cent in the 1990s to about 16 per cent in FY24, it still remains the single-largest sector in terms of employment and livelihood, with over 46 per cent of the population dependant on it directly and indirectly. This contrasts with the US, wherein hardly 2 per cent of the population is employed in agriculture and allied activities. Further, in India, the average size of land-holding is just a fraction of that in the US, which not only makes mechanisation challenging but also adds to the cost of farming. This will make the domestic players uncompetitive, thus leading to a larger social and political crisis.
Limited impact
Having said this, even if US were to take a stricter stance through higher reciprocal tariffs, the impact may be limited at an aggregate level – as the US as a market accounts for a little over 10 per cent of India’s agri exports. Within the agri space, segments such as horticulture and sea food may see some short-term impact, should the US up its ante. Even in these sectors, the dependence on the US should not be more than 30-35 per cent. And other markets such as Europe, the UK and others account for the rest. Further, there is demand from the sea food exporters in India to reduce the customs duty on US imports; this may not materially impact the local industry, as US imports is not material. For instance, shrimp imports from the US totalled to $ 2.91 million vs export of $1.8 billion to the US last fiscal.
In products such as basmati rice, wherein India is among the largest exporters globally, the share of the US is not very significant. For instance, KRBL’s export of basmati to the US is hardly 6 per cent of its export revenue, which is about 1 per cent of its total revenue (as exports account for only 20 per cent of revenue). The largest market for Indian basmati rice is the West Asian nations. Hence the impact on listed rice producers will be minimal.
In the case of other agri commodities such as sugar too, MENA region, Asia and South-East Asia continue to be the chief export markets. Thus the impact on such politically- and socially-sensitive essential commodities such as sugar is insignificant.
All said, the impact of the overall reciprocal tariff will be clear only when the fine-print of the policy is made public. While specific products may have some impact, we believe this would normalise over a period of time for two reasons. One, Even if the US is keen to encourage self-sufficiency, it will be some time before that fructifies and in the interim, the domestic demand will have to be met, thereby making import substitution more a long-term strategy. Two, India also has the option to work on other alternate markets should the exports to the US become very competitive.
