India is at a historic juncture in its economic development trajectory. It is hamstrung by high tariff barriers and only possesses a paltry share of global exports—perennially, now, under 2%. Currently, India is the fifth-largest global economy. Its lower exposure to international trade might offer it a strategic advantage in an impending global slowdown sparked by tariff-centric policies. With the country’s long-standing history of trade barriers, that’s difficult to do.
Starting in 1991, India went through a significant shift in trade policy. The country slashed import barriers and allowed its currency to float, dramatically altering the country’s economic dynamics. This historic change gave a critical lifeline to exporters and domestic producers alike who were facing growing competition from foreign imports. India’s decision during the 1960s to prioritize import substitution over integration into global markets contrasts sharply with the strategies adopted by its Asian counterparts like Taiwan, South Korea, and Singapore.
Today, India’s self-reliance instinct may actually protect it more in the new protectionist global order. The last decade of unilateral, protectionist measures have weighed down the Make in India initiative. While this initiative aimed to revive capital and technology-intensive sectors, it failed to acknowledge that labor-intensive industries, such as textiles. Otherwise, India risks losing a potential golden moment on the global stage. To do so, it needs to diversify its trade partner and ratchet down tariffs.
India’s huge and growing domestic market has fueled this extraordinary rise, allowing it to surpass more large and small economies. This achievement is all the more remarkable amidst a backdrop of weakening global growth. In the last few years India’s per-capita income has more than doubled. Collectively, this remarkable 17-year growth rate was more than the cumulative growth of the entirety of the 20th Century and was attributed to trade liberalization and economic reforms.
As the United States turns inward and China faces mounting pressures, opportunities arise for India to emerge as a reliable trade partner, particularly with the European Union. As noted by trade experts, India will need to stay sharp and flexible in its execution of a more export-oriented international trade policy.
“Tariffs have created protectionism in several Indian industries, disincentivising investments in efficiency by cosy incumbents and allowing them to steadily garner market power by building up concentrated positions,” – Viral Acharya.
India’s current tariff structure may pose risks. These new estimates by the Global Trade Research Initiative (GTRI) indicate that Indian exports to the U.S. could decline by roughly $7.76 billion this year alone. This drop, totaling 6.4%, is likely in response to U.S. President Trump’s announced intentions to implement new tariffs. Such rapid developments shed light on the nature of global trade dynamics, as well as the resulting impact on India’s economy.
As Rajeswari Sengupta noted, this is where India’s lower exposure to global goods trade might play to our advantage. And for export-driven economies, growth will begin to decelerate under the tariff burden. As long as we can keep our comparative growth at 6%, we’ll start to look comparatively strong enough, especially with our huge domestic market as a cushion. This trade vision fits into a larger narrative of opportunity, amid global economic unpredictability, with India poised to reap great rewards.
Experts warn against complacency. Rajeswari Sengupta further notes, “Being trade-shy has turned into an advantage – we can’t afford complacency. To seize new opportunities, India must stay nimble and open up more to trade gradually and strategically.” This feeling of discontent mirrors India’s present challenges in balancing the domestic demand for self-reliance with engagement in overseas markets.
Some key policymakers are wary of international commerce. This skepticism comes from a post-colonial context where trade was perceived as the next wave of colonization. Vivek Dehejia further to those worries, Vivek Dehejia… As we shall see, many post-colonial states, India among them, are sorely distrustful that international commerce and trade are not just new vehicles of colonization. Unfortunately, that mindset hasn’t disappeared from all corners of Washington and it would be a waste if it did. This protective mood music could make it difficult for India to fully tap into the opportunity represented by global trade.
The stakes couldn’t be higher for India as it treads these stormy shores. The country risks missing out on significant opportunities if it does not broaden its trade base and actively engage with global markets. The road ahead will take great wisdom by balancing our domestic priorities against our growing international obligations.
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