How the Removal of GSP Benefits is Hurting Indian Businesses

What is GSP?

The Generalized System of Preferences (GSP) was a U.S. trade program that allowed duty-free exports from developing countries, including India, on over 3,500 products. It provided cost advantages to Indian exporters, enabling them to compete effectively in the U.S. market.

Why Did Trump Revoke It?

In 2019, the Trump administration removed India from the GSP program, citing market access issues for American companies in India. The decision was based on concerns that India was not providing fair access to U.S. businesses in sectors such as e-commerce and medical devices. This policy shift significantly affected India’s trade relationship with the U.S.

How It’s Hurting Indian Businesses

Higher Export Costs

Indian businesses now pay U.S. import duties on goods that were previously duty-free. This increase in costs makes Indian products more expensive in the U.S. market, reducing their price competitiveness.

Reduced Competitiveness

Countries that still enjoy GSP benefits, such as Indonesia and Thailand, now have a pricing advantage over Indian exports. This shift in trade dynamics makes it harder for Indian businesses to retain their market share.

Decline in Exports

Several key industries, including textiles, leather, gems and jewelry, and auto parts, have reported a decline in exports due to higher tariffs. The increased cost burden has made Indian products less attractive to U.S. buyers, resulting in reduced demand.

Loss for MSMEs

Small and medium-sized enterprises (MSMEs) were among the biggest beneficiaries of GSP, as it allowed them to compete in the U.S. market with lower costs. The removal of these benefits has made it difficult for MSMEs to sustain their export operations, leading to reduced revenue and job losses.

Impact on Indian Trade and Economy

The removal of GSP benefits has forced Indian exporters to either absorb higher costs or pass them on to buyers. This has led to a decline in demand and profitability. While India has sought to diversify its trade strategies by exploring new markets and negotiating free trade agreements, regaining GSP benefits or securing better trade terms with the U.S. remains crucial for long-term economic stability.

Conclusion

The removal of GSP benefits has created significant challenges for Indian exporters, particularly MSMEs. The increased tariffs and loss of price competitiveness have affected trade volumes and economic growth. Moving forward, India must strengthen its trade policies and engage in strategic negotiations to regain market access and improve trade conditions with the U.S.