Global Economic Transformation
The global economy is experiencing significant transformations characterized by shifts in trade policies and sustained geopolitical tensions. These changes have led to trade wars, tariff reviews, and an increase in bilateral trade negotiations. The result is heightened uncertainties affecting trade, financial markets, and economic growth prospects.
Impact on Indian Exports
The United States is India's largest export destination, accounting for nearly one-fifth of India's merchandise exports. Several Indian sectors have high dependence on the U.S. market including:
- Marine
- Apparel
- Carpets
- Gems and jewelry
- Pharmaceuticals
- Auto components
- Electronics
Uncertainties in the U.S. tariff regime could severely impact Indian exporters, especially Micro, Small, and Medium Enterprises (MSMEs), making their exports potentially unviable. However, interim deals and trade agreements being negotiated by the U.S., including with India, and a U.S. Court’s order challenging reciprocal tariffs, create an uncertain scenario.
India's Strategic Opportunities
India stands to benefit from the global restructuring of trade by crafting the right strategies. A three-pronged approach is recommended:
- Manage external shocks.
- Ensure domestic economic resilience.
- Leverage the opportunity to enhance global exports.
Bilateral Trade Agreement (BTA) with the U.S.
India should conclude a BTA with the U.S. to gain a first-mover advantage, aiming for zero tariffs on critical sectors and addressing non-tariff barriers through mutual recognition agreements.
Other Free Trade Agreements (FTAs)
The conclusion of an FTA with the U.K. is beneficial. India should pursue FTAs with the European Union, Australia, and key partners to diversify market access.
Strengthening Import Monitoring
To prevent dumping into India, robust import monitoring mechanisms and swift trade remedial measures are necessary.
Domestic Economic Measures
Key domestic strategies include:
- Sustaining public capital expenditure to maintain growth momentum.
- Maintaining an accommodative monetary policy to stimulate growth.
- Focusing on attracting foreign investments to shift supply chains to India.
- Implementing next-generation reforms and expanding Production-Linked Incentive (PLI) schemes for sectors like hearables, wearables, IoT devices, and battery raw materials.
Despite global uncertainties, strategic trade negotiations and structural reforms can position India as a global manufacturing hub, integrating it into global supply chains.
