By India’s trade policy is under scrutiny as the country is facing new economic challenges and global pressures in 2025.
With its GDP growth hitting a multi-year low and geopolitical tensions shaping trade dynamics around the world, the government is being pushed to rethink its approach to trade.
This could be a “once in a lifetime” opportunity for the country, only if they get this right.
Slowing growth and rising barriers
India’s GDP growth has slowed to 5.4% in the July-September quarter of 2024, marking an 18-month low.
This stagnation is compounded by falling demand for key exports like gems, jewellery, and petroleum products, traditionally strong contributors to India’s trade balance.
At the same time, new trade barriers are emerging. President Donald Trump’s renewed focus on tariffs threatens India’s access to its largest export market—the United States.
The proposed tariffs could erode India’s competitiveness, raising prices for American consumers and reducing demand for Indian goods.
Domestically, India has implemented more than 700 Quality Control Orders (QCOs) over the past two years, covering goods like steel, chemicals, and toys.
While framed as measures to ensure import quality, QCOs have effectively become non-tariff barriers that restrict imports.
Businesses report delays, unpredictable regulations, and rising costs, all of which are hampering supply chains and export potential.
Why services exports matter
India’s services sector has emerged as a beacon of growth for the country. Services exports, particularly in IT and financial services, are outperforming manufacturing exports.
Global Capability Centers (GCCs), operated by companies like Microsoft, Amazon, and Walmart, have become hubs for innovation and job creation in India.
These GCCs not only support India’s export growth but also integrate local start-ups into global supply chains.
Their contribution is significant, and experts believe they could help offset some of the economic pressures caused by slowing manufacturing growth and rising trade barriers.
Can manufacturing compete?
India’s reliance on manufacturing exports has been under pressure. External factors such as the EU’s Carbon Border Adjustment Mechanism (CBAM) are expected to raise costs for carbon-intensive exports like steel.
Domestically, the high number of QCOs is increasing input costs for labor-intensive industries like garments and leather, which are vital for job creation.
Selective focus on high-value manufacturing sectors could provide a way forward. Sectors such as semiconductors, critical minerals, and pharmaceuticals have strategic importance and align with global demand.
Policymakers are now exploring trade partnerships that prioritize these industries, ensuring India remains competitive in key markets.
The US-India equation
The United States remains India’s most important trade partner, but relations are under strain. Tariffs and anti-immigration policies are the biggest challenges.
For example, the Generalized System of Preferences (GSP), which provided preferential market access for Indian goods, has not been renewed since 2020. Lobbying for its restoration may yield little, as the Trump administration is unlikely to prioritize it.
Instead, experts suggest focusing on building stronger bilateral agreements that support sectors like GCCs and high-tech manufacturing.
India should also reduce its dependence on concessions like H-1B visas, as anti-immigration sentiment in the US remains high.
A new trade strategy
This is the perfect opportunity for India to diversify its trade portfolio. Joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) could be a game-changer.
This high-quality trade agreement offers preferential access to three G7 markets—Japan, Canada, and the UK—along with several others, including Australia, New Zealand, and Vietnam.
Membership in the CPTPP could help India modernize its trade practices, expand export opportunities, and reduce reliance on U.S. markets.
The agreement’s focus on services and financial exports aligns with India’s strengths, making it a natural fit for the country’s evolving trade strategy.
Lessons from India-China trade
Despite ongoing border disputes, India’s trade with China remains robust. China is India’s second-largest trading partner, and supply chains in sectors like electronics are deeply connected.
For instance, Apple’s iPhone production in India relies heavily on Chinese components.
Efforts to reduce dependence on Chinese imports have proven difficult.
The rising trade deficit between the two countries highlights how connected their economies are.
Policymakers are beginning to acknowledge that competing with China may require collaboration in supply chains.
A “once in a lifetime” opportunity
India’s trade policy challenges are also its greatest opportunities for transformation.
The services sector, powered by Global Capability Centers (GCCs), is emerging as a global leader in IT, fintech, and innovation, creating a fertile ground for investors.
High-value manufacturing sectors like semiconductors, pharmaceuticals, and critical minerals are poised for growth, especially as companies diversify supply chains under the “China +1” strategy.
Smart, strategic moves like joining the CPTPP could open doors to lucrative markets and modernize India’s trade practices, creating new opportunities in advanced manufacturing and financial services.
Furthermore, India’s young population, expanding domestic market, and integration into global supply chains present an unparalleled proposition for investors in the Indian market.
However, realizing this potential depends on decisive policy reforms, such as easing regulatory hurdles like QCOs and fostering a more dynamic business environment.
Those who position themselves early in India’s evolving economy—betting on its transition from a protectionist stance to a global trade leader—stand to gain significant long-term rewards.
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