The United States-led global tariff war is causing unprecedented disruption to global trade and undermining the long-standing rule-based multilateral trade framework  which has affected India’s trade as well. The WTO-led global trading system is facing the headwinds of trade protectionism, weaponization of economic policies, disguised trade restrictions and geopolitical competition. Countries across the world are reimagining their policies in the context of changed global economic realities. Amid rising protectionism and geopolitical tensions, having a robust trade policy becomes imperative in responding to these challenges and expanding the country’s choices. 

India’s trade policy response needs to be more dynamic, context-specific and business-oriented in the evolving geoeconomic realities. This is imperative to make India’s trade policy more competitive and resilient to ensure that it minimize the potential adverse implications of global trade upheavals. In this context, three crucial areas need attention of policymakers. These include aligning its export basket with global demand, re-examining the FTA (free trade agreement) strategy and productivity and efficiency driven reforms.

India's Export Share                                                          

One of the main impediments in India’s export basket is that it still relies on traditional markets such as the United States and the European Union for its exports. Around 40 percent of India’s exports are to the United States and the EU markets. Furthermore, India’s export share in global exports is less than 2 per cent, even after having 20% tariff lines in the top five products. It suggests that India is not among the top five countries where a substantial amount of global trade happens. 

Furthermore, India’s export share in global exports at the HSN four-digit level exceeds 5 per cent in five product categories. These include petroleum products, precious and semi-precious stones, tubes, pipe fittings, cyclic hydrocarbons, t-shirts, knitted and crocheted items, and insecticide and herbicide products. The NITI Aayog report, titled the 2025 Trade Watch report, states that nearly 66 per cent of global imports, worth $15.8 trillion, are concentrated in a select product group, where India’s share is only 0.2 per cent. On the contrary, nearly 3 per cent of global imports, valued at $1.5 trillion, are in product categories where India holds a significant share of 18.2 per cent. It demonstrates the incongruence between the world import demand and India’s export basket thereby underscores the importance of aligning India’s production and export capabilities with ever-changing global import demand.

Rethinking FTA Strategy

India’s experience with free trade agreements has not been favourable. The scholarly literature demonstrates that India’s trade deficit with its FTA partners has increased significantly post FTAs. A diverse range of internal factors have contributed suboptimal gains from FTAs. These include inadequate trade and transport facilitation, shallow trade, investment and services provisions and poor competitiveness of the manufacturing sector among others. Recognizing the fact that India has not been able benefit from its existing trade agreements, it is crucial for policymakers to follow a cautious approach in ongoing trade negotiations with advanced economies such as the United States and the European Union, before addressing the internal constraints. In this context, India needs to protect its interests in domestically sensitive sectors by maintaining adequate degree of protection. Agriculture and MSMEs are two highly politically sensitive sectors and play a crucial role in socio-economic transformation of millions of people involved in these two sectors. Further, India needs to refrain from negotiating legally binding trade rules in areas such as digital trade and green energy transition. Preserving policy space in these areas is vital to pursue robust industrial policies to support the development of domestic digital and green economy.

In view of global supply chain fragilities and realignments, MNCs are aggressively pursuing “China Plus One strategy” to minimize the potential adverse effects on their supply chains. This provides an opportunity for India to emerge as a viable alternative destination for manufacturing due to its large domestic market, cheap labour costs and strategic location. To lure global corporations  to invest in India requires focus on enabling business policies, infrastructure development, and a greater synchronization between trade, investment, competition policies

Productivity-Enhancing Reforms

In view of global trade disruptions and protectionism, productivity-enhancing reforms are considered as new sources of economic dynamism and competitiveness. India also needs to emphasise productivity-enhancing reforms to bolster sectoral and firm-level competitiveness. For example, India’s recent push for labour reforms 2.0 is an important policy reform to enhance India’s overall competitiveness. Factor and goods market reforms are crucial to improving efficiency, competition, and economic competitiveness (Kathuria, 2025b). Studies have shown that the lack of market reforms, including factors and goods, adversely impacts firms’ competitiveness and productivity, thereby limiting their ability to harness the benefits of size, scale, and scope. India has introduced a series of factors and goods market reforms (land reform, goods and services taxes), but these reforms have not been able to deliver the desired economic gains. The depth, breadth and scope of these reforms remained shallow and have not been able to make a significant impact on business operations.

Given these global challenges which signify long term shifts, India needs to move out of its laidback approach and take specific and business-oriented reforms where they are direly required. Addressing administrative and regulatory impediments, decriminalising minor business offences, and time-bound dispute resolutions are essential to enhance the competitiveness of the economy. In short, India policymakers need to shed their tunnel vision to reimagine the contours and specificity of its trade policy in view of global trade disruptions.

(The author is an Associate Professor at Jindal School of Liberal Arts and Humanities, O.P Jindal Global University, Sonipat, India. His research interest includes international business, international trade policy, global business strategy, global value chains, industrial policy and WTO related issues. Views expressed are personal. He can be contacted at surendar.singh@jgu.edu.in )