India must diversify exports amid US tariff risks: RBI MPC member

RBI MPC member Nagesh Kumar stressed the urgent need for India to diversify its export markets. He warned that growing US tariff risks, particularly on labour-intensive sectors like textiles, could significantly weigh on the country's shipments.

US Tariff Risks Prompt Call for Diversification

India needs to urgently diversify its export markets as growing US tariff risks could weigh on shipments, particularly from labour-intensive sectors such as textiles and garments, according to the Reserve Bank of India Monetary Policy Committee member Nagesh Kumar.

Kumar, in the minutes of the central bank's August policy meeting, said the US accounts for one-fifth of India's exports and around one-third of labour-intensive exports, making the recent tariff measures a significant concern for the country's external sector.

"The US is the biggest market, accounting for one-fifth of India's exports and around a third of labour-intensive exports such as textiles and garments, these are matters of great concern. India needs to diversify the export markets urgently," Kumar noted.

Details of US Tariffs

The US has imposed a 10 per cent tariff on top of Most Favoured Nation tariffs on Indian exports on account of the use of forced labour, while another Section 301 investigation is ongoing against India and other countries for excess capacity, he said.

Kumar also flagged a 100 per cent tariff on generic drug imports from 2028 and 200 per cent from 2029, adding to the risks facing India's exports.

Geopolitical Challenges and European Solutions

The MPC member of the apex bank said the concerns over trade policy had intensified alongside geopolitical and agricultural risks, with the West Asia conflict and the blockade of the Strait of Hormuz also posing challenges to the economic outlook.

Against this backdrop, he pointed to recent trade agreements with European countries as a potential avenue for diversifying India's export base.

FTAs with EFTA, UK, and EU

The Free Trade Agreements (FTAs) with the European Free Trade Association (EFTA) countries and the UK are already in force, while the agreement with the European Union, signed on January 27, 2026, is likely to come into force by the end of this year, Kumar said.

"Together they provide India's exports, especially in labour-intensive sectors, with a level playing field vis-a-vis Vietnam and Bangladesh in European countries for the first time and may help to diversify our exports," he said.

Kumar said the European agreements could therefore help India reduce its dependence on the US market while creating opportunities for labour-intensive exports.

He, however, called for caution amid uncertainty over geopolitics, trade policy and the monsoon, saying these factors need to be closely watched for their impact on India's economic outlook.

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