The Hindu Editorial Analysis
23 June 2025
Steering the Indian economy amidst global troubles
(Source – The Hindu, National Edition – Page No. – 08)
Topic: GS 3 – Indian Economy: Growth, Trade Policy, External Sector, Global Economic Challenges
Context:
Global economic uncertainties, including trade wars, tariff escalations, and geopolitical tensions, are reshaping international trade flows. In this context, India must navigate rising costs and supply chain disruptions, while also seizing medium- to long-term opportunities to reposition itself in the global value chain.
Introduction:
The global economy is witnessing a significant transformation. Trade tensions, new tariffs, and shifting geopolitical dynamics are pushing countries to reassess their economic and trade strategies. For India, which is heavily dependent on the U.S. and a few global markets for exports, this realignment poses both challenges and opportunities.
Key Challenges and Possible Issues
1. Tariff Uncertainty with the U.S.
- Details: The U.S. is India’s top export destination, absorbing 1/5th of India’s merchandise exports.
- Impact: New reciprocal tariffs and the U.S. trade body’s recent decisions may threaten key Indian sectors like textiles, pharma, auto components, and electronics.
2. Margin Pressure on MSMEs
- Details: Higher U.S. tariffs could erode profit margins.
- Impact: This makes exports by MSMEs particularly unviable, given their thin margins and dependency on single markets.
3. Asymmetric Information and Supply Chain Disruption
- Details: Exporters lack clarity on evolving trade norms and pricing structures.
- Impact: Impacts decision-making and delays new orders, possibly leading to reduced competitiveness.
Strategic Response and Medium-to-Long-Term Opportunities
1. Proactive Bilateral Trade Agreements (BTAs)
- Example: India has already initiated BTA talks with the U.S.
- Impact: A well-structured BTA can ensure preferential tariffs on key sectors and protect Indian trade interests.
2. Expansion of FTAs
- Details: India has concluded an FTA with the UK and must pursue deals with the EU and Australia.
- Impact: Diversifies export destinations and reduces over-reliance on any one market like the U.S.
3. Strengthened Import Monitoring
- Details: Risk of dumping from ASEAN and China has increased due to tariff restructuring.
- Impact: Timely import safeguards are essential to protect domestic industry.
4. Public Capex as a Growth Anchor
- Details: Government spending can crowd-in private investment.
- Impact: Ensures economic resilience even amidst global trade contraction.
5. Diversify FDI Inflows and Manufacturing
- Details: Encourage sectors like electronics, batteries, EVs, etc., especially from China+1 strategy countries.
- Impact: Strengthens domestic value chains and builds global export hubs.
Expedited Domestic Reforms
1. Speed up Union Budget Announcements
- Details: New tax reforms and regulatory relief must be implemented swiftly.
- Impact: Builds investor confidence and improves ease of doing business.
2. Expand PLI Schemes
- Details: Sectors like battery storage, wearables, and semiconductors should be added.
- Impact: Boosts high-tech exports and import substitution capacity.
Conclusion:
Amid global uncertainty, India stands at a critical juncture to transform into a manufacturing and export powerhouse. While short-term challenges like tariffs and trade disputes must be addressed tactically, the long-term approach must focus on diversification, deep structural reforms, and smart trade engagement. With resilience, India can not only weather the storm but emerge stronger and more self-reliant in the global economy.