India’s Economy Amid Global Shifts

GS3 – Indian Economy

India’s economy is facing increasing external pressures due to rising geopolitical tensions, trade wars, tariff uncertainties, and disruptions in global supply chains.

Global Challenges: Key Concerns for India

1. Trade Uncertainty
   • Escalation of trade wars and tariff changes, especially involving the U.S. (India’s top export destination).
   • Sectors at risk: Apparel, gems & jewellery, pharmaceuticals, electronics, auto components.
2. Tariff-Related Risks
   • Possible reciprocal tariffs by the U.S. could severely affect MSMEs relying on U.S. markets.
   • Volatile trade policies hinder long-term export planning and order fulfilment.
3. Dumping Threat
   • China and ASEAN countries, with surplus goods, may dump products into India.
   • This poses a risk of unfair competition and price undercutting, especially in low-cost sectors.

India’s Strategic Response

Strategic Trade Negotiations

• India–U.S. Bilateral Trade Agreement (BTA):
  • Aims to reduce tariffs in key sectors.
  • Focus on resolving non-tariff barriers (NTBs) and establishing mutual recognition agreements.
• Expanding Free Trade Agreements (FTAs):
  • UK FTA is close to completion.
  • India is expediting FTA talks with the EU, Australia, and others to diversify export markets and reduce reliance on a few regions.

Domestic Economic Resilience

• Anti-Dumping Measures:
  • Strengthening India’s trade remedial framework to counter predatory pricing and protect domestic industries.
• Public Capital Expenditure:
  • Continued investment in infrastructure will sustain growth and attract private capital, especially when global demand is weak.
• Monetary Policy:
  • With inflation under control, accommodative policy (including interest rate cuts) may boost consumption and investment.

Note: Predatory pricing refers to selling products below cost to eliminate competition and create monopolies.

Investment & Industrial Strategy

• Anchor Foreign Investment:
  • Leverage the China+1 strategy by attracting firms to set up manufacturing units in India, particularly in:
    • Electronics
    • Semiconductors
    • Green technologies
• Expand PLI Schemes:
  • Broaden the scope of Production-Linked Incentive (PLI) schemes to cover:
    • IoT devices
    • Wearables
    • EV battery components
  • Supports both manufacturing expansion and employment generation.