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Author: -Bhoumik Swami, student of BBA LLB at Kalinga University Naya Raipur
Introduction
Trade has always been more than an exchange of goods and services. For nations, it is a matter of survival, prestige, and power. In the twenty-first century, trade is inseparable from geopolitics, and no country demonstrates this better than India. Positioned between rising protectionism on one side and the demands of globalization on the other, India’s trade policy reflects a careful balancing act.
The world order today is deeply polarized. The United States and China are locked in a strategic rivalry that has spilled over into trade, technology, and security. Russia’s invasion of Ukraine and the resulting sanctions regimes have further splintered global alignments. New blocs like BRICS+ and initiatives such as the Indo-Pacific Economic Framework (IPEF) compete with older institutions like the WTO and GATT legacy. In this climate, countries like India must navigate carefully—maximizing opportunities without becoming trapped in rigid alignments.
India’s trade choices reveal both ambition and caution. It seeks integration into global supply chains and increased exports but avoids overdependence on a single bloc. It embraces free trade agreements when they suit its interests yet withdraws when they threaten domestic priorities. Its regulatory framework—anchored in statutes like the Foreign Trade (Development and Regulation) Act, 1992 (FTDR Act), the Foreign Exchange Management Act, 1999 (FEMA), and the Customs Act, 1962—reflects both liberalization and strategic control.
This essay explores India’s trade policies in this polarized global environment. It traces historical shifts, analyzes the regulatory framework, and examines India’s strategic posture in a divided world. It also assesses the challenges India faces, from WTO disputes to climate-linked tariffs, and offers insights into future pathways where India may emerge as a leader of the Global South.
Historical Roots of India’s Trade Policy
From Autarky to Controlled Liberalization
India’s trade policy after independence in 1947 was driven by the philosophy of economic self-reliance. Influenced by Nehruvian socialism, India imposed high tariffs, quotas, and licensing systems to protect domestic industries. The “License Raj” created a heavily regulated trade environment, where imports were restricted, foreign capital was tightly monitored, and domestic industry was sheltered.
This autarkic model was not without reason—India had just emerged from colonial exploitation and feared economic dependence on foreign powers. Yet, it led to inefficiencies, low competitiveness, and limited integration with the global economy.
The 1991 Liberalization Moment
By 1991, a balance of payments crisis forced India to rethink its trade strategy. The New Economic Policy introduced under Prime Minister P. V. Narasimha Rao and Finance Minister Manmohan Singh dismantled much of the License Raj, reduced tariffs, encouraged foreign investment, and integrated India into the global market.
This shift was transformative. India joined the World Trade Organization (WTO) in 1995, committing itself to multilateral rules-based trade. Export sectors like information technology and pharmaceuticals flourished. Yet, liberalization was never absolute—India continued to protect sensitive sectors like agriculture and small-scale industries.
The WTO Era and Selective Globalization
India’s post-1995 trade policy has been a mix of engagement and resistance. It championed developing country concerns in WTO negotiations, fought for food security provisions, and resisted demands to open its market too quickly. This selective globalization continues to define India’s approach: engage when it benefits domestic growth, resist when it threatens sovereignty or livelihoods.
India’s Trade Policy Framework
India’s trade policies are shaped by a combination of legal statutes, regulatory institutions, and international commitments.
- The FTDR Act, 1992 empowers the government to regulate imports and exports, issue licenses, and set trade policy directions.
- The Foreign Exchange Management Act (FEMA), 1999 regulates cross-border capital and current account transactions, ensuring stability in foreign exchange markets.
- The Customs Act, 1962 governs tariffs, import-export duties, and border enforcement.
- The SEZ Act, 2005 provides for Special Economic Zones to boost exports by offering tax incentives and liberalized trade environments.
Key institutions include the Directorate General of Foreign Trade (DGFT), which administers trade policies; the Reserve Bank of India (RBI), which manages external payments; and the Directorate General of Trade Remedies (DGTR), which investigates anti-dumping and safeguard measures.
This framework reflects a balance—laws that liberalize trade co-exist with mechanisms that protect strategic sectors.
The Polarized World Order
The US–China Rivalry
The most defining feature of global trade today is the rivalry between the United States and China. Their disputes over tariffs, technology, and supply chains have reshaped global trade flows. India, sharing a fraught border with China yet heavily reliant on Chinese imports for electronics and pharmaceuticals, faces a difficult choice. While India deepens strategic ties with the U.S. through initiatives like the Quad, it must also manage economic interdependence with China.
Russia–Ukraine Conflict and Sanctions
Russia’s war in Ukraine and the Western sanctions that followed further polarized the world. India has maintained a delicate neutrality—buying discounted Russian oil while engaging with the U.S. and Europe. This balancing act reflects India’s broader approach: avoid rigid camps, maximize national interest.
Multilateralism under Strain
Institutions like the WTO have weakened, with disputes dragging unresolved due to the paralysis of its Appellate Body. This erosion of multilateralism pushes countries toward bilateral and regional trade agreements, where India must selectively participate.
BRICS, G20, and Emerging Coalitions
India plays an active role in alternative coalitions like BRICS+, where trade is increasingly discussed in non-dollar terms. At the G20, particularly during its 2023 Presidency, India positioned itself as the voice of the Global South—advocating inclusive trade, resilient supply chains, and digital public infrastructure.
India’s Strategic Choices in Trade
Free Trade Agreements (FTAs)
India has pursued FTAs to expand its trade footprint. The India–UAE Comprehensive Economic Partnership Agreement (CEPA) and the India–Australia Economic Cooperation and Trade Agreement (ECTA) mark a new phase of assertive trade diplomacy. Negotiations with the European Union, United Kingdom, Canada, and GCC countries are underway.
The RCEP Decision
India’s withdrawal from the Regional Comprehensive Economic Partnership (RCEP) in 2019 illustrates its cautious approach. Concerned about cheap Chinese imports harming domestic industries, India chose to prioritize sovereignty and industrial protection over regional integration. This decision signaled that trade liberalization would not come at the cost of domestic livelihoods.
Indo-Pacific Economic Framework (IPEF)
India’s participation in the IPEF reflects its willingness to shape the rules of trade in the Indo-Pacific without committing to binding tariff reductions. It seeks influence in digital economy, clean energy, and supply chains while avoiding overexposure.
Challenges for India
Agricultural Subsidies and WTO Disputes
India has frequently clashed with developed countries over agricultural subsidies and public stockholding for food security. Cases like India—Certain Measures Relating to Solar Cells and Solar Modules and India—Measures Concerning the Importation of Certain Agricultural Products highlight tensions between domestic policy and WTO obligations.
EU Carbon Border Adjustment Mechanism (CBAM)
The EU’s CBAM, which taxes imports based on carbon emissions, poses a serious challenge for Indian exports in steel, cement, and aluminum. This forces India to balance trade interests with its climate commitments.
Digital Trade and Data Sovereignty
India’s insistence on data localization and digital sovereignty sometimes clashes with demands for free digital trade. Yet, this stance reflects both economic and security imperatives in the age of big data.
TRIPS Waiver and Global Health
During the COVID-19 pandemic, India, along with South Africa, led the push for a TRIPS waiver on vaccines. Though partially successful, the episode revealed the fault lines between developed and developing nations in intellectual property regimes.
Case Studies
Solar Panels Dispute
In a WTO case, India’s requirement for domestic sourcing of solar cells was struck down as inconsistent with trade rules. While the policy aimed to build green energy capacity, it highlighted the conflict between trade liberalization and domestic industrialization.
Agricultural Imports Dispute
India’s restrictions on poultry and other agricultural imports faced WTO challenges. Here again, health and safety concerns clashed with trade obligations.
Fisheries Subsidies Negotiations
India played a critical role in WTO negotiations on fisheries subsidies, emphasizing the need to protect the livelihoods of small-scale fishers in developing countries.
G20 Presidency 2023
India’s leadership in the G20 brought focus on resilient supply chains, digital public infrastructure, and inclusive trade—cementing its role as a mediator between developed and developing nations.
Future Pathways
Looking ahead, India’s trade strategy must evolve in three key directions:
- Green Trade – balancing industrial growth with carbon commitments, adapting to mechanisms like CBAM, and investing in renewable exports.
- Digital Economy – shaping rules on data governance, digital services, and cross-border flows while protecting national interests.
- Global South Leadership – positioning itself as a bridge between developed and developing nations, advocating for fairer trade rules, and reforming the WTO.
By 2040, India could emerge as a pivotal rule-shaper in global trade, provided it invests in competitiveness, diversifies export markets, and strengthens institutional capacity.
Conclusion
India’s trade policies today represent a geopolitical tightrope walk. It must integrate with global markets yet preserve sovereignty, embrace free trade but protect vulnerable sectors, align with the West while maintaining ties with the East. This balancing act is not a sign of indecision—it is a deliberate strategy to navigate a fragmented world.
As global polarization deepens, India’s ability to blend pragmatism with principle will determine whether it becomes merely a large market or a true rule-shaper in global trade. The stakes are high, but so are the opportunities.
