Navigating Trade Relations: Strategies for Partnering with 'External Powers' in India, China, and the West
In the 1990s, India embarked on a significant journey of economic transformation, aiming to improve productivity, exports, and competitiveness, particularly in comparison to East Asia's rapid development models. The catalyst for this change was the 1991 New Economic Policy, which signified a shift from a closed, centrally planned economy to one that embraced liberalisation, privatisation, and globalisation (the LPG model).
The policy marked a turning point, with India implementing key strategies such as liberalisation, privatisation, globalisation, financial sector reforms, sector-specific reforms, and the introduction of the Goods and Services Tax (GST).
Liberalisation saw the relaxation of government controls, the abolition of most industrial licensing requirements, and the deregulation of industries. This move was designed to encourage free trade and competitiveness, while privatisation and disinvestment aimed to improve productivity by reducing the role of inefficient public sector enterprises.
India also opened its economy to foreign direct investment (FDI), inviting multinational companies, and reduced import tariffs to integrate with global markets and enhance export capacity. Financial sector reforms, including deregulating interest rates, allowing private banks, and rationalising tax systems, were implemented to improve financial market efficiency and access to credit for businesses.
Post-2015, policies such as Make in India, Digital India, Startup India, and Production Linked Incentives (PLI) schemes were introduced to boost manufacturing competitiveness, technological innovation, and export orientation, drawing lessons from East Asian countries' export-led growth models. The GST, implemented in 2017, aimed to unify and simplify indirect taxation, reducing compliance burdens and promoting ease of doing business domestically and internationally.
More recently, the Atmanirbhar Bharat reforms (2020–21) focused on improving self-reliance by supporting micro, small, and medium enterprises (MSMEs), reforming agricultural markets, and liberalising FDI rules further to stimulate productivity and exports.
India's strategies since the 1990s have centred on dismantling regulatory barriers, integrating with global markets, and fostering innovation-driven growth, aimed at enhancing productivity, exports, and competitiveness in a way adapted to its unique political and economic context.
Notably, firms in India that export, particularly those exporting 75% or more of their production, dominate compared to other regions. Import in high-growth areas like electric vehicles, batteries, and semiconductors can accelerate sustainable growth. However, it's worth noting that among developing regions, firm-level productivity in South Asia (where India dominates economically) is four-fifths that of East Asia.
India's trade negotiators traditionally protect access to agricultural products such as dairy products, edible oils, and rubber. Over the last two decades, India has improved from being a middling supplier to amongst the top fifteen exporters, diversifying from textiles, gems, and basic manufacturing to electronics, pharmaceuticals, machinery, and automobiles.
As the US President Donald Trump expects to "open up" India, a trade deal between the two countries has a deadline of July 8. However, if a deal is not reached, the 10% basic import duty for Indian exports to the US will increase to 26%. An "early harvest" framework for a large defence or cutting-edge technology manufacturing partnership plus limited import access for genetically modified foods for consumption might bring a reprieve.
India is committed to becoming carbon neutral by 2070, and per capita carbon emissions continue to be lower than the global average. However, in 2023, China is the world's largest exporter, while India lags in comparison with exports as a share of current GDP being 22%.
In conclusion, India's economic transformation over the past three decades has been marked by a gradual opening up to the world, a focus on fostering innovation, and a commitment to improving productivity and competitiveness. While challenges remain, particularly in comparison to emerging global hegemons like China, India's unique approach to economic reform has positioned it as a significant player in the global economy.
Technology has become an essential aspect of India's efforts to boost manufacturing competitiveness, as evidenced in post-2015 initiatives like Make in India and Digital India. These programs aim to foster technological innovation, enhance export orientation, and align with the successful export-led growth models of East Asian countries.
Sports, while not explicitly mentioned in the text, can serve as an analogous example of India's economic transformation, particularly in terms of global integration and competitiveness. Similar to how India has opened its economy to foreign direct investment and reduced import tariffs, many Indian athletes have embraced foreign mentorship, training, and international competitions to improve their skills and performance on a global stage.
