Context:
India’s micro, small, and medium enterprises (MSMEs) remain highly exposed to trade policy disruptions, particularly the U.S. tariff hikes. Sectors such as textiles, auto parts, and gems & jewellery, where MSMEs have a significant footprint, are particularly sensitive due to:
- Low financial buffers
- Limited capacity for rapid strategy realignment
- High dependence on export-linked revenues
Lenders Push for Risk Mitigation through Credit Guarantee Reform
Banks are actively considering modifications to credit guarantee terms to cushion MSMEs from tariff-driven credit risks. The proposal involves:
- Enhancing credit coverage under government-backed schemes
- Streamlining access to working capital
- Potential collaboration with the Union Government and industry bodies to structure targeted relief
The aim is to reduce lender hesitation in funding vulnerable enterprises during a time of external trade pressure.
Relative Advantage Amid Global Shifts
- Despite exposure to tariffs, some Indian SMEs may gain competitive advantage over Chinese firms, which are subject to higher reciprocal tariffs.
- To leverage this, bankers argue that incentives and proactive government policy are essential.
Lending Trends and Sector Exposure
According to RBI data (February 2025):
- Credit to micro and small units rose 9.7% YoY to â‚ą7.84 trillion
- Credit to medium-sized firms grew 18.1% YoY to â‚ą3.52 trillion
These figures suggest healthy credit demand, but underlying risks may increase if trade barriers remain or intensify.
Sectoral Safeguards and Policy Fluidity
The pharmaceuticals sector, a major export contributor, has been kept outside the tariff regime. However, policy inconsistency from the U.S. adds uncertainty across other key sectors. Textiles, with high export value and employment potential, is flagged as a priority area for risk monitoring and stakeholder consultation.
Government-Lender Coordination Underway
Public sector banks are engaging with government officials, MSME units, and trade bodies to:
- Assess the evolving impact
- Build tailored credit and policy responses
- Explore sector-specific support measures
These consultations will shape medium-term strategies as the situation remains fluid.
Trade Impact: Contained Direct Hit, Broader Collateral Risks
SBI’s internal research shows that exports to the U.S. account for just ~4% of India’s GDP, indicating a limited direct macroeconomic impact. However, broader risks loom:
- A global slowdown could dampen export orders across markets
- Financial market volatility may erode credit confidence and investor sentiment
- India’s exports to the U.S. have declined since FY23, now forming 17–18% of total exports
The top 15 items exported to the U.S. represent 63% of the value, amplifying the importance of focused policy for these sectors.
