In a world reeling from shifting US trade policies and rising protectionist sentiment, India’s cautious approach to trade has offered short-term insulation. Unlike export-reliant countries, India’s relative detachment from global goods trade has helped it absorb shocks from tariff wars and geopolitical disruptions.
“India’s lower exposure to global trade could work in its favour,” says Rajeswari Sengupta, economics professor at the Indira Gandhi Institute of Development Research. “But long-term growth demands openness.”
India is the world's fifth-largest and fastest-growing major economy. Yet, a recent legacy of protectionism and inward-focused trade policies have held back its global competitiveness.
Its tariffs are high and the share of global exports remains under 2%. India's vast domestic market has fuelled its growth - outpacing many others, economists argue, largely because the rest of the world is slowing. But in a turbulent, increasingly protectionist era, India's instinct for self-reliance may oddly serve as a short-term shield.
Historically, India’s trade posture has swung between guarded protectionism and hesitant liberalisation. Through the mid-20th century, a focus on import substitution led to high tariffs, strict licensing, and eventual stagnation in exports. While Asian economies embraced global markets, India curbed consumer goods imports, stifling competitiveness and technological advancement.
It wasn’t until the 1991 balance-of-payments crisis that India undertook sweeping trade reforms. Import controls were dismantled, the rupee was devalued, and tariffs were lowered. Exports surged six-fold between 2002 and 2012, and per capita income grew more in the early 21st century than in the previous hundred years.
Yet, this liberalisation has seen setbacks—most notably since 2018—with a return to higher tariffs and frequent anti-dumping measures. Critics argue that this protectionism has undermined Prime Minister Narendra Modi’s Make in India push by favouring capital-heavy sectors over job-rich, labour-intensive industries like textiles.
Economist Vivek Dehejia attributes this hesitation to a deep-rooted suspicion of global trade among Indian policymakers. “There’s still a lingering view that trade is a new form of colonisation,” he says.
The consequences are tangible. In 2024, India exported nearly $89 billion to the US, including $12 billion in gold jewellery and diamonds. But looming American tariffs—particularly under Donald Trump’s return to aggressive trade tactics—could slash Indian exports to the US by 6.4%, or $7.76 billion, according to the Global Trade Research Initiative.
To turn the tide, experts call for comprehensive reforms: simplified tariffs, smoother GST implementation, better trade infrastructure, and balanced trade deals with key partners such as the EU, UK, and Canada. Medium and small-scale sectors—especially in garments, toys, and textiles—could be big beneficiaries if the environment turns favourable.
“India needs to act now,” says GTRI’s Ajay Srivastava. “The window of opportunity is open, but not forever.”
