ReutersIndia’s big business is the fifth-largest and fastest-growing in the world.
However, a recent legacy of protectionism and inward-focused business plans has hampered its ability to compete globally.
Its tariffs are high and the share of global exports remains under 2%. India’s vast domestic market has fuelled its growth – outpacing many others, economists argue, largely because the rest of the world is slowing. But in a turbulent, increasingly protectionist era, India’s instinct for self-reliance may oddly serve as a short-term shield.
India’s comparative separation may have helped it weather surprises that have jolted more trade-dependent markets as nations scramble to adjust in response to shifting US business procedures, such as Donald Trump’s most recent 90-day tax wait after weeks of sabre-rattling.
” India’s lessening exposure to the international goods trade may benefit us.” We’ll begin looking stronger by contrast, particularly with our huge domestic market falling back on, according to Rajeswari Sengupta, an associate professor of economics at Mumbai’s Indira Gandhi Institute of Development Research, if export-driven markets slow down under the influence of tariffs and keep growing at 6 %.
” Trade-shy behavior has gained us a competitive edge, but we can’t afford confidence,” he said. India may remain agile and open up more to business slowly and strategically, she adds, in order to capitalize on new options.
Given India’s extended and complex relationship with trade restrictions and taxes, it might not be simple.
AFPIn his book India’s Trade Policy: The 1990s and Beyond, renowned business professional Arvind Panagariya from Columbia University examines the intricate and frequently contradictory development of India’s approach to business.
Industries like fabric and iron and steel fought for and received great levels of protection during the interwar years. Due to World War Two’s persistent shortages, trade regulations were made yet more stringent, enforced through a sophisticated registration system.
In contrast, Eastern countries like Taiwan, South Korea, and Singapore switched to export-focused tactics in the 1960s and started posting impressive progress levels of 8 to 10 % periodically. India made the decision to double down on trade substitution. As a result, imports as a share of GDP shrank from 10 % in 1957–58 to just 4 % by 1969–70.
By the middle of the 1960s, India had completely outlawed imports of consumer products. This relieved domestic producers of the pressure to increase quality, as well as denying them access to top-notch materials and technology.
In the end, Indian items lost their attractiveness on world markets and imports stagnated. The resulting international trade shortages caused a vicious cycle that suppressed growth by putting also stricter import controls in place. Per capita income increased at a slow rate of only 1.5 % annually between 1951 and 1981.
The moving point occurred in 1991. India removed numerous buy controls and allowed the rupee to decrease in response to the balance-of-payments issue, which gave exporters and domestic producers who were in the market for imports a much-needed increase. Only in 2001, after the World Trade Organization ( WTO ) issued a ruling against it, was import licensing for consumer goods come into effect.
The effect was astounding: between 2002-2003 and 2011-2012, India’s exports of goods and services increased by sixfold, rising from$ 75 billion to over$ 400 billion.
According to Prof. Panagariya, India’s per head revenue increased more in the first 17 times of the 21st Century than it did throughout the entire 20th Century.
However, the business backlash didn’t come to an end.
According to Prof. Panagariya, the introduction of anti-dumping measures to stop exports from the most economical sources was reversed twice in India, once in 1996-1997 and once more since 2018.
” Some post-colonial says like India harbor a sigh of unease that international trade and commerce are brand-new types of colonization. However, some politicians still harbor this attitude, which is unfortunate, says Vivek Dehejia, a professor of economics at Carleton University in Canada.
ReutersSome economists contend that Prime Minister Narendra Modi’s Make in India effort, which focused on money and technology-intensive sectors while stifling labor-intensive sectors like textiles, has been undermined by a decade of protectionist policies. In consequence, the program struggled to make significant increases in both domestic and export.
Europeans won’t have the earnings to pay for the goods they purchase from us if they are unable to sell their goods to us. They will have to cut back on ours if we cut back on their products, according to Prof. Panagariya.
Additionally, favoritism has been suggested as a result of this protectionism.
According to Viral Acharya, a professor of economics at New York University Stern School of Business, “tariffs have created isolationism in some American industries, disincentivizing investments in effectiveness by cosy incumbents and allowing them to rapidly gain market power by building up focused positions.”
Countries in the European Union are looking for trustworthy trade partners, and India might be one of them as the US is under increasing pressure. According to economists, India must cut its tariffs, increase export competition, and show its willingness to open up global trade in order to capitalize on this situation.
Particularly for the medium and small-scale sectors, sectors like clothing, textiles, and toys offer a golden opportunity. The big question is, however, can they scale up after a decade of stagnation, and will the government support them?
According to an estimate from the Global Trade Research Initiative ( GTRI), a Delhi-based think tank, if Trump implements his tariff plans after the current pause, India could experience a 7.76bn or 6.4 % drop in exports to the US this year. India exported$ 89 billion worth of goods to the American market in 2024.
According to Ajay Srivastava of GTRI,” The Trump tariffs are anticipated to hit India’s merchandise exports to the US mildly.”
He emphasizes the need for India to expand its trade base in the wake of the US’s recent agreement to achieve a balanced trade balance. Along with strengthening ties with China, Russia, Japan, South Korea, and Asean, there are also fast-tracking agreements with the EU, the UK, and Canada.
At home, real impact hinges on reforms: simpler tariffs, a smoother goods and services tax (GST), better trade processes and fair implementation of quality controls. Without these, India risks missing the global moment.
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