Often in times of crisis, India has turned to economic changes; the most well-known instance of this is in 1991 when the nation adopted liberalisation in reaction to a severe financial crisis. Now, many feel India finds itself at yet another crossroads as former US President Donald Trump’s tariff fights cause global economic disturbance. Among these changes, India Trade Policy is once more under examination.
Could this be a big chance for the fifth-largest economy in the world to get rid of protectionism and open its economy more? Will India retreat further or grab the opportunity like it did more than thirty years ago?
Why Does India Reputation for High Tariffs Exists?
Trump called India repeatedly the “tariff king” and a “big abuser” of trade ties. The issue is that India boasts among the highest trade-weighted import duties—the average tariff rate per imported good—in the world. Data from the World Trade Organization shows that the US average tariff is 2.2%, China’s is 3%, Japan’s is 1.7%, and India’s sits shockingly at 12%.
High tariffs make it more difficult for businesses depending on global value chains to compete worldwide and raise expenses for them. They also lead Indians spending more for imported items than foreign consumers. India runs a sizable trade imbalance even with rising exports, mostly driven by services. Given India’s just 1.5% proportion of world exports, the issue of India Trade Policy and global competitiveness becomes even more critical.
Will India pick protectionism or openness?
The jury debates whether Trump’s tariff war would drive India toward further protectionism or economic liberalization. Often attacked for its protectionist policies, the present government seems to be changing direction.
Ahead of Prime Minister Narendra Modi’s visit with Trump in Washington, India has unilaterally reduced taxes on Bourbon whiskey, motorcycles, and certain other US goods. After Trump’s warnings of retaliatory tariffs, Commerce Minister Piyush Goyal has visited the US several times to negotiate a possible trade agreement.
With pharmaceuticals, cars, and food imports also at risk, Citi Research analysts project India might lose up to $7 billion yearly from reciprocal tariffs, mostly impacting metals, chemicals, and jewelry.
In a noteworthy speech, Goyal exhorted Indian exporters to “come out of their protectionist mindset” and challenged them to aggressively interact with world markets from a position of strength and self-confidence.
How might India benefit from the global trade realignment?
India is aggressively negotiating free trade deals with the European Union, New Zealand, and the United Kingdom among other nations. Unexpectedly, meanwhile, domestic telecom behemoths Reliance Jio and Bharti Airtel have teamed with SpaceX owned by Elon Musk to provide satellite internet services via Starlink in India Given Musk’s past conflicts with these corporations, especially, this decision shocked observers; it also comes as US and Indian officials negotiate a trade agreement.
India’s slow entrance into world markets helped explain its explosive rise from the late 1990s to the 2000s—8.1% during 2004-2009 and 7.46% from 2009-2014. Key sectors including medicines, software, cars, and textiles prospered alongside a consistent tariff drop during this time. But India has adopted a more inward-looking posture recently.
Has Protectionism Slowed India's Economic Development?
Many analysts contend that protectionist measures over the past ten years have weakened Modi’s Make in India project, which gave capital- and technology-intensive sectors top priority over labour-intensive ones like textiles. The approach has therefore struggled to increase manufacturing and exports.
High tariffs have also encouraged monopolies inside Indian businesses, therefore discouraging efficiency-oriented investment. By boosting India’s share of world commerce and thereby lowering protectionism, economist Viral Acharya adds that lowering tariffs could restore industrial balance.
“We have to increase exports; a tit-for-tat tariff war won’t help us here. With its large export base, China can afford this approach; but, we cannot as we only have a minor portion of the world market. Rajeshwari Sengupta, an associate professor of economics at the Indira Gandhi Institute of Development Research, remarked To prevent economic stagnation, the India Trade Policy has to line up with world trends.
How may India strike a balance between employment demands and growth?
India offers a special chance to help to define a fresh perspective on world trade. India might establish itself as a major participant in a “re-globalized” world by reducing protectionist obstacles in South Asia and enhancing commercial links with Southeast Asia and the Middle East.
Trade analyst Aseema Sinha said, “by lowering tariffs India could become a regional and cross-regional magnet for trade and economic activity, drawing in varied powers in its orbit.”
This change could also enable India to generate the sorely needed jobs. With almost 40% of India’s workforce employed in agriculture, which makes up 15% of the country’s GDP, production is shockingly low. Still the second biggest job is construction, drawing casual daily workers.
India’s true difficulty is not in growing its already-thriving service industry, which accounts for almost half of all exports, but in giving its vast pool of unskilled workers employment.
“Although luxury services are booming, most of the workforce is still inadequately educated and underemployed, usually assigned to construction or unofficial employment. India has to increase its manufacturing exports if it is to give millions of new workers annually meaningful employment; depending just on services will not meet the needs of the unskilled labor population.
Can India Guard Its Own From Dumping While Reducing Tariffs?
Reducing tariffs raises questions about possible dumping, in which foreign businesses flood the market with low-cost items, therefore damaging local businesses.
Since India’s present import tariff rates remain some of the highest among its trading partners, Sengupta advises that India’s ideal trade strategy would be a “universal reduction” in import tariffs. She does caution, though, that China’s trade woes—especially with the US—may cause short-term Chinese dumping in India to rise.
India can deploy non-tariff barriers against China to guard against this, but only in relation to confirmed dumping. Apart from that, India stands to gain from a wholesale tariff cut.
Is India overcompensating about trade policies?
India might be giving too many concessions to please the US, which causes increasing worry. Trade specialist Ajay Srivastava feels that India’s inclination to “based on rhetoric rather than economic pressure” to relax regulations reveals a lack of assertiveness in world trade negotiations.
“India seems particularly vulnerable to pressure tactics, compared to other major economies, because of its pre-emptive surrender on several trade fronts—without the US imposing a single country-specific tariff,” he said.
Will India grab this chance or pass by once more?
Most agree that India should take advantage of the unanticipated effects of Trump’s trade battles. Chief India economist at HSBC Pranjul Bhandari says “potential US tariffs may have become a catalyst for reforms.” “If supply chains are rejigged again during a second Trump presidency due of higher tariffs on large exporters, and the world looks for new producers, India may get a second chance.” India must not miss this chance by means of a strategic trade policy.
Still, manufacturing employment will not be easy to create. India has mainly missed out on low-end manufacturing, the kind of employment China controlled for decades. India runs the danger of lagging once more as automation increases without more fundamental reforms.
