Festive demand, GST cuts likely to cushion tariff impact: Bankers

Mumbai: Increased domestic demand during the ongoing festive season, aided by goods and services tax (GST) rate cuts, could boost the prospects of US tariffs-hit sectors as they pivot to local markets and diversify supply chains, bankers told ET.

Micro, small and medium enterprises (MSMEs) are also exploring opportunities in alternative markets or routing goods through other economies to cushion the impact of doubling of US tariffs to 50% on a wide range of goods from August 27.

Bankers said the shift towards domestic markets, coupled with supply chain realignments, is expected to drive fresh working capital needs and incremental credit demand, particularly in MSME-heavy clusters.

“The strengthening domestic demand environment and opportunities in other economies may help cushion the impact, as many businesses pivot toward local markets and diversify supply chains,” said Manish Kothari, group president and head of commercial banking at Kotak Mahindra Bank. “For MSMEs, GST reforms ease input costs, simplify compliance and reduce working capital pressures, which can unlock fresh credit demand, especially among first-time and small borrowers. This presents a meaningful business opportunity for banks, particularly in semi-urban and rural clusters.”

US tariffs have posed particular challenges to export-oriented MSMEs in sectors such as textiles, gems and jewellery, seafood, engineering goods and auto components. However, domestic consumption boost could lessen the negative impact.

“We believe the government is very active in protecting affected sectors, especially MSMEs, so the sector should not face undue credit stress from tariff shocks,” said Anshul Chandak, head of treasury at RBL Bank. “While secondary impacts from falling orders and margin pressures could weigh on borrowers, many are likely to manage through stronger domestic demand or by shifting to other markets.”