India faces rising global tariff barriers in key sectors like agriculture, pharmaceuticals, and electronics. The US has criticised India’s relatively high tariffs and imposed punitive duties related to India’s crude oil imports from Russia. These developments expose India’s vulnerability to external shocks and show the need for a resilient economy. India’s growth strategy now focuses on absorbing shocks through diversification, innovation, and inclusive growth.
Current Trade Challenges
India’s trade is impacted by rising tariffs and non-tariff barriers from major partners. Dependence on a few markets and sensitive imports increases risks. The US tariffs on Indian exports and sanctions-linked duties on crude oil have triggered concerns among exporters and investors. This scenario puts stress on the urgency to rethink trade policies and economic strategies.
Diversifying Export Markets
Relying on limited markets increases exposure to geopolitical risks. Countries like Vietnam and Chile have successfully mitigated risks by expanding trade across many regions. India is urged to explore underserved markets in Africa, Latin America, and Eastern Europe. Fast-tracking trade agreements with the Gulf Cooperation Council, the UK, African Union, MERCOSUR, and Central Asia is crucial. Targeted exports such as dairy to West Asia and renewable energy to East Africa can boost resilience.
Strengthening Domestic Value Chains
Heavy import dependence in critical sectors hampers production stability. Nations like China and South Korea have enhanced self-reliance in steel, electronics, and shipbuilding. India must localise key inputs including semiconductors, speciality chemicals, textiles, and active pharmaceutical ingredients. Building industrial clusters for MSMEs with shared R&D, labs, and logistics will improve competitiveness. Infrastructure upgrades in freight corridors, digital customs, and cold chains are vital.
Building Macro Resilience
Tariffs are one among many threats including commodity price shocks, currency fluctuations, and capital outflows. Norway’s sovereign wealth fund and Singapore’s reserves exemplify macroeconomic buffers. India should maintain foreign exchange reserves sufficient for 12 to 18 months of imports. Creating a stabilisation fund from windfall revenues will help cushion economic shocks.
Driving Innovation and Technological Advancement
Competing on cost alone is unsustainable. Israel’s leadership in cyber security and Finland’s transition to high-tech industries show the importance of innovation. India must invest heavily in artificial intelligence, biotechnology, clean energy, and advanced materials. Accelerating patent filings and approvals is essential. Developing climate-friendly industrial hubs aligned with global green standards will enhance export competitiveness.
Inclusive Growth and Tourism Development
Tourism and services offer stable foreign exchange and employment. Countries like Thailand and Spain treat tourism as a strategic economic pillar. India’s tourism campaigns such as Visit Bharat aim to connect heritage, eco-tourism, and food circuits to local economies. Improving e-visa facilities, airport infrastructure, and multilingual services will boost this sector’s contribution.
An Integrated Approach to Resilience
Resilience requires a multi-pronged strategy. Vietnam’s success came from manufacturing readiness, Norway’s fund from fiscal discipline, and Israel’s innovation from education-defence integration. India’s six pillars—diversified exports, stronger value chains, macro buffers, innovation, fast governance, and inclusive growth—work together to absorb shocks. This ensures that a disruption in one area is offset by strengths in others.
Preparing for the Decade of Resilience
India’s young workforce, rising domestic demand, and infrastructure growth are assets. Treating volatility as a norm rather than surprise is key. By adapting global best practices and linking them to initiatives like Visit Bharat, India aims to lead rather than react. The goal is to face future tariff or currency shocks with confidence and agility.
Questions for UPSC:
- Critically analyse the impact of tariff barriers on emerging economies with reference to India’s trade challenges.
- Explain the role of diversification in export markets and how it can enhance economic resilience. Illustrate with examples from Asia and Latin America.
- What are the key components of building domestic value chains in an industrial economy? How do infrastructure and innovation contribute to this process?
- With suitable examples, comment on the importance of macroeconomic buffers such as sovereign wealth funds and foreign exchange reserves in stabilising economies during global shocks.
