The global economy is undergoing a significant transformation, marked by shifts in trade policies and continuing geopolitical tensions.

Global Economic Disruptions

• Trade Wars and Tariff Reviews: A resurgence of trade wars and countries actively reviewing tariffs have increased uncertainty in global trade and financial markets. Example: The 1930 Great Depression worsened due to high tariffs.
• Geopolitical Tensions: Conflicts between Russia and Ukraine disrupting food supply chains. Example: Ukraine Wheat Export stopped.
• Pandemic: Covid-19 caused shutdown in factories and ports. Example:Surge in dumping risks from surplus-producing nations like China and ASEAN
• Asymmetric information: Exporters are avoiding new investments due to uncertainty about future trade policies.

Impact on India

• India’s Risk Exposure: The United States is India’s largest export destination, accounting for nearly one-fifth of merchandise exports.
  • Sectors like marine products, apparel, gems and jewellery, pharmaceuticals, auto components, and electronics are highly dependent.
• MSME Pressure: Potential additional tariffs could erode profit margins and make exports unviable, particularly for MSMEs.
• Planning Disruptions: Uncertainty around reciprocal tariffs and trade deals delays new orders and affects exporters’ planning and risk assessments.
• Dumping Risk: There’s a heightened threat of dumping from countries like China and ASEAN nations, looking to redirect surplus production into Indian markets.
• Moderated Direct Impact: The overall impact on India’s macroeconomy may be limited due to:
  • Strong services exports
  • High remittances
  • Adequate forex reserve
  • Low current account deficit

India’s Strategic Response

• Proactive Trade Talks: India is negotiating a Bilateral Trade Agreement (BTA) with the U.S. to secure a first-mover advantage and ensure zero tariffs on key export sectors, while protecting its services exports and addressing non-tariff barriers. 
• Market Access: India is building on the FTA with the U.K. and accelerating trade deals with the EU, Australia,Japan, South Korea and other partners to diversify export destinations and reduce dependence on the U.S. market.
• Protecting Domestic Industry: Stronger import monitoring and swift trade remedial measures are being prioritized to prevent dumping and shield domestic manufacturers from unfair competition.
• Sustaining Economic Resilience: Public capital expenditure is being maintained to support growth and crowd-in private investments, while the RBI is expected to keep monetary policy accommodative as inflation remains under control.
• Attracting Global Investments: India is positioning itself as a preferred destination for global companies looking to shift supply chains away from China and Vietnam, using a focused, sector-specific investment strategy.
• Accelerating Structural Reforms: Key reforms proposed in recent Union Budgets are being fast-tracked, and Production-Linked Incentive (PLI) schemes are being expanded to include sectors like wearables, IoT devices, and battery raw materials to boost manufacturing and self-reliance.

Conclusion

Global disruptions pose real challenges, but also offer a unique window for India to position itself as a global manufacturing and trade hub. 

• Through agile trade policy, protective measures, supportive macroeconomic stance, and expedited reforms, India can emerge stronger in the evolving world order.

DOWNLOAD PDF