India’s small and medium businesses could soon feel the heat of a brewing global trade war. While US President Donald Trump has temporarily paused his plan to implement reciprocal tariff hikes on Indian goods for 90 days, the long-term implications of this move—especially in the context of a larger tariff war with China—could pose serious threats to India’s already vulnerable MSME (micro, small and medium enterprises) sector.

A new report from India Ratings & Research (Ind-Ra) highlights the precarious position of Indian MSMEs as they attempt to recover from the financial shocks of the COVID-19 pandemic.

According to the report, as many as 23 per cent of MSMEs in India remain financially stressed even before any formal trade war impacts have materialized. The introduction of aggressive tariffs by the US, along with subsequent retaliatory measures by other nations, could significantly exacerbate this situation.

Neermoy Shah, Associate Director for Emerging Corporates at Ind-Ra, points out that most MSMEs face chronic challenges such as limited access to capital and a lack of skilled managerial support.

“Capex intensity remains low as MSMEs are constantly grappling with working capital constraints. These businesses often don’t have a capable second line of management with the skills to negotiate effectively with lenders, suppliers, or buyers,” Shah explained.