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23 Jun 2025 : Steering the Indian economy amidst global troubles

Editorial 2: Steering the Indian economy amidst global troubles

Context

The industry needs to rethink its strategies due to rising costs, supply chain disruptions, and unequal access to information.

 

Introduction

The global economy is going through a major change, driven by shifting trade policies and ongoing geopolitical tensions. There is a rise in trade wars, countries are revising tariffs, and more bilateral trade deals are being discussed. These changes have created greater uncertainty, affecting not only international trade but also financial markets and the overall economic growth outlook.

 

India’s Export Strategy Amid Evolving Global Trade Dynamics

  • With global trade dynamics changing quickly, there could be a structural shift in world trade, affecting trade and investments in the long run.
  • Businesses need to balance short-term challenges with long-term opportunities.
  • The industry must rethink its strategy due to:
    • Rising costs
    • Broken supply chains
    • Uneven access to information
  • The United States is India’s largest export market, accounting for almost 20% of India's merchandise exports.
  • Because of this, any uncertainty in U.S. tariff policies has a big impact on Indian exporters.
  • India relies heavily on the U.S. market for sectors like:
    • Marine products
    • Apparel
    • Carpets
    • Gems and jewellery
    • Pharmaceuticals
    • Auto components
    • Electronics
  • Any extra tariffs from the U.S. would:
    • Cut into profit margins
    • Especially hurt Micro, Small, and Medium Enterprises (MSMEs)
    • Make exports unviable in highly dependent sectors

Possible issues

Aspect

Details

Uncertainty of U.S. Tariffs

The U.S.’s decision to impose reciprocal tariffs remains uncertain due to ongoing trade negotiationswith several countries, including India, and a U.S. court ruling that questions the legality of these tariffs.

Tariff Advantage for India

It is unclear whether Indian exporters will gain any tariff advantage over countries like China, Bangladesh, or Vietnam, which was earlier seen as likely when the tariffs were first announced.

Economic Impact on India

Experts believe that even if the tariffs are imposed, the direct impact on India’s economy will be limitedbecause of: 
– Strong services exports 
– High remittances 
– Healthy forex reserves 
– Low current account deficit

Effect on Exporters

The uncertainty is harming Indian exporters, especially in planning new orders and making business decisions.

Dumping Risk

There is a rising risk of increased dumping into India by China and ASEAN countries, as they may try to offload surplus production into the Indian market.

 

Medium- to long-term opportunity

  • India can gain from global trade shifts
    • Despite global challenges, India has a real chance to become a key part of global supply chains if the right strategy is followed.
    • A three-pronged strategy is needed:
      • Manage external shocks (like tariff changes or supply disruptions)
      • Build domestic economic resilience
      • Use the global window to boost India’s exports
  1. Bilateral Trade Agreement (BTA) with the U.S.
    • India has taken a proactive step by starting early negotiations.
    • A first-mover advantage can be gained if India concludes the deal ahead of others.
    • The agreement should:
      • Ensure zero tariffs for key sectors
      • Cautiously open up sensitive areas
      • Protect India’s national priorities
    • Service exports to the U.S. must be protected.
    • Tariff liberalisation must be done on a strictly bilateral basis.
    • Addressing non-tariff barriers (NTBs) is crucial.
    • Mutual recognition agreements should be explored.
    • The goal is a quick but balanced trade deal.
  2. Free Trade Agreements (FTAs) with other partners
    • The FTA with the U.K. is a positive step.
    • India should also actively pursue:
      • FTA with the European Union
      • Comprehensive Economic Cooperation Agreement with Australia
      • FTAs with other strategic partners
    • These deals will give Indian exporters better access to alternative markets.
  3. Tackle the risk of dumping into India
    • Strengthen import monitoring systems to deal with excess foreign goods entering Indian markets.
    • Use trade remedial measures quickly to protect Indian industries from harm.
  4. Continue public capital spending
    • Maintain public infrastructure investment to keep the economy growing despite external shocks.
    • This will also help attract private investments over the medium term.
  5. Keep monetary policy supportive
    • With inflation under control, the RBI should continue an accommodative policy stance.
    • Lower interest rates in the future could help boost economic growth.
  6. Attract foreign investments
    • Focus on drawing global companies looking to move supply chains out of China, Vietnam, etc.
    • Use a targeted approach to encourage them to set up operations in India.

 

Conclusion

India must quickly move forward with the next-generation reforms and regulatory changes suggested in the last two Union Budgets. The Production-Linked Incentive (PLI) schemes should be expanded to cover more promising areas like hearables and wearables, IoT devices, and battery raw materials. These steps will help increase manufacturing, draw more investment into key sectors, and boost self-reliance. Even though global uncertainties bring many challenges, they also create a chance for India to become a major manufacturing hub and a strong part of global supply chains. With the help of smart trade deals and structural reforms, India can handle the crisis and come out stronger. The industry must rethink its strategies due to rising costs, broken supply chains, and uneven access to information.