Mumbai (AFP) - Indian exporters were bracing Wednesday for higher US tariffs to kick in as prospects dim for an interim trade deal between New Delhi and Washington before the August 1 deadline.

On Tuesday, US President Donald Trump said India could face a 20-25 percent rate since a deal had not been finalised, although he added that a final levy was yet to be decided.

While lower than the 26 percent reciprocal tariffs Washington previously announced in April, that would would still represent a leap from the current 10 percent baseline tariff on Indian shipments to the United States.

India, the world’s most populous country, was one of the first few major economies to engage Washington in broader trade talks.

But six months later, Trump’s sweeping demands and India’s reluctance to fully open its agricultural and dairy sectors have so far prevented Delhi from sealing a deal that would shield it from punitive tariffs.

“We are also not very hopeful (for a trade deal)… Only a miracle can make it happen,” Ajay Sahai, director general of the Federation of Indian Export Organisations told AFP.

“So both Indian exporters and US importers are figuring out how they can absorb these hard duties so the supply chain can stay intact,” he said.

Sahai said both exporters and buyers would see their profit margins impacted as they seek to prevent a drop in trade while awaiting an India-US deal.

“Much will depend on what tariff comes… But assuming it is even 20 or 25 percent, both sides will share the hit.”

Indian trade minister Piyush Goyal said last week that talks with the United States were making “fast progress”.

But US Trade Representative Jamieson Greer told CNBC in an interview “more negotiations” would be needed with India “to see how ambitious they want to be”.

While Trump may still spring a surprise with a last-minute announcement, both countries are focusing on negotiating a broader bilateral trade agreement (BTA).

- ‘Slippery slope’ -

With US trade officials set to visit India later in August for a round of talks, the countries are hoping to make some progress by October.

Trade expert Biswajit Dhar of the Council for Social Development think-tank said India had done well so far by resisting American pressure.

“Once you start caving in, that’s a slippery slope. Sticking firm here will allow us to get a better bilateral trade agreement,” Dhar said, adding that India should adopt the “Chinese attitude”.

He added: “Let us not forget, Trump needs larger markets. And he’s not going to be jumping too soon to do something drastic.”

While India is not a manufacturing powerhouse, it still ran up a $45.7 billion trade surplus with the United States last year.

The uncertainty sparked by Trump’s chaotic trade policies has also cast a shadow on India’s labour-intensive exports including gems and jewellery, shrimp and textiles.

Sudhir Sekhri, chairman of the Apparel Export Promotion Council, said his industry had seen “sluggish” orders from US buyers for two months now as they await final tariff decisions.

“It’s not just the US. Our order flow from Europe has also gone down,” Sekhri told AFP.

“This is because the Chinese, who were hit with 30 percent tariffs, are diverting their production to European buyers.”

Textile and garment exporters were pinning hopes on the government concluding a comprehensive trade deal by October, Sekhri said.

Sekhri added that his sector could not absorb the tariff shock due to thin profit margins.

“In the textile sector, we work on margins between three and five percent. Garments are slightly higher, maybe at around five percent to seven percent,” he said.

“Obviously we can’t afford that kind of a hit.”