India has historically turned to economic reforms during times of crisis, with the 1991 liberalisation being a landmark shift. Now, as the global economy faces disruptions from former US President Donald Trump's tariff wars, the question arises: Will India seize this opportunity to open its economy further, or will it reinforce its protectionist stance?
India has long been criticised for its high trade-weighted import duties, standing at 12%, compared to the US (2.2%), China (3%), and Japan (1.7%), according to the World Trade Organization. High tariffs increase costs for industries relying on global supply chains and limit India’s competitiveness in international markets. While India's exports have grown, primarily driven by the services sector, its share of global exports remains just 1.5%, making the need for trade reforms more pressing.
In a shift from its traditionally protectionist approach, the Modi government recently lowered tariffs on key US products, including Bourbon whiskey and motorcycles, ahead of a crucial meeting between Prime Minister Narendra Modi and Trump. Commerce Minister Piyush Goyal has actively engaged in trade talks with the US, even urging Indian exporters to move past their "protectionist mindset" and compete globally with confidence. Additionally, India is negotiating free trade agreements with the UK, the European Union, and New Zealand.
Amidst these economic shifts, an unexpected partnership has emerged between Indian telecom giants Reliance Jio and Bharti Airtel with Elon Musk’s SpaceX to launch satellite internet services in India. This development surprised analysts, especially given Musk’s prior clashes with the Indian telecom sector, and came as trade negotiations between India and the US intensified.
India’s economic boom in the late 1990s and early 2000s was largely driven by its integration into global markets. However, in recent years, high tariffs and protectionist policies have hindered the success of the 'Make in India' initiative, which aimed to boost manufacturing and exports. Experts warn that such policies have created a business environment where established companies dominate without significant competition, discouraging efficiency and investment.
Economists argue that reducing tariffs could restore balance and enhance India’s global trade standing. However, concerns remain over potential dumping of cheap Chinese goods into the Indian market, particularly as China grapples with the effects of its own trade war with the US. Some experts suggest implementing targeted non-tariff barriers against China while pursuing an overall reduction in import duties.
Amid these debates, India’s approach to trade negotiations with the US has also come under scrutiny. Some analysts believe that India is making premature trade concessions without leveraging its bargaining power effectively. They caution that further compromises in negotiations could weaken India’s stance in global trade discussions.
Despite challenges, many economists view Trump’s trade policies as an unintended catalyst for Indian economic reforms. If global supply chains shift again due to potential tariffs in a second Trump presidency, India could benefit as new manufacturing hubs emerge. However, with automation on the rise and India lagging in low-end factory jobs, the window of opportunity may be limited.
The decisions made in the coming years could shape India's economic trajectory for decades, determining whether the country strengthens its position in global trade or remains on the fringes of major economic shifts.