Trade Knowledge Exchange > Commentary > India’s Strategic Role in Global Trade: Navigating Challenges and Capitalising on Opportunities.

India’s Strategic Role in Global Trade: Navigating Challenges and Capitalising on Opportunities.

India has emerged as a significant player in the international trading system, particularly as a leading exporter of services. However, its engagement in global trade rulemaking has been marked by a cautious approach. As the global trade landscape undergoes significant changes, India faces both challenges and opportunities that will shape its future role in the international economy. Through this article, I reflect on India’s strategic role in global trade, based on our recent podcast episode with Dr Anirudh Shingal and Stuti Toshi, where they discussed these challenges and opportunities in depth. You can listen to the full podcast episode here.

Market Access Difficulties and Decoupling from China

Entry into global markets remains a challenge for Indian firms. They often face significant barriers. Some of these are home-grown and create a challenging domestic business climate, while tariffs and non-tariff measures implemented by partners continue to apply to India’s exports.

The recent, growing discourse around the potential of “decoupling” from China, driven by geopolitical tensions and supply chain vulnerabilities exposed by the COVID-19 pandemic, presents both a challenge and an opportunity. While decoupling from China could disrupt established supply chains, it also offers India a chance to position itself as an alternative manufacturing hub, attracting investments and enhancing its trade profile. Especially as global companies are keen to hedge their risks by adopting a ‘China Plus One (C+1)’ strategy, and India is considered as one of the prime locations for this new inflow of investments.

Even domestic Indian businesses are increasingly looking to relocate their manufacturing from China to India. For instance, in October 2023, The Economic Times reported that Voltas, India’s largest air conditioning company, plans to move the production of compressors and other motor parts to India. This relocation is intended to be done in partnership with a company from Korea or Japan (see also, Manufacturing Today). The choice of a Korean or Japanese partner was influenced by the Indian government’s rejection of an initial proposal to establish the manufacturing plant with a Chinese partner.

While air conditioner compressors may not be as sensitive as technologies like 5G, this shift underscores a growing political intent to limit engagement with China through policy measures. From a commercial standpoint, it remains uncertain whether businesses will consistently choose non-Chinese partners in their strategies. In the case of Voltas, this move does not necessarily indicate a complete divestment from Chinese partnerships but could set a significant precedent.

In parallel, we see India reconfiguring its approach by negotiating free trade agreements (such as the one recently concluded with EFTA countries) and re-modelling its bilateral investment treaties.

Multilateral Trade and the WTO

Friendshoring is the buzzword within international trade and when we look at India, we see that this will possibly be decided by India’s commercial interests and their natural inclination to keep trading with their important trading partners such as the USA, the GCC etc. Moreover, investment is at the forefront and supply chain reorientation will also influence who they add in as partners.

Despite its prominent position in global trade, India has historically adopted a defensive posture in negotiations. For example, at the World Trade Organisation (WTO), India has not participated in plurilateral work on digital negotiations and has been hostile to a moratorium on duties on electronic transmissions, notwithstanding its strength in digital and ICT services. India’s primary focus has been on resolving outstanding issues from the Doha Round, notably in agriculture.

This cautious stance stems from a desire to protect specific sectors and ensure that international agreements do not undermine national interests. More generally India’s approach has often been characterized by a focus on preserving policy space to support its development goals, which sometimes puts it at odds with more liberal trade agendas promoted by advanced economies. However, India taking itself out of these policy conversations may harm its ability to negotiate for terms that benefit their interests in areas such as services. Moreover, India’s reticence to pursue tariff liberalisation creates anti-export biases that stop it from benefitting from the gains of trade.

“I think we’ve come to a stage where, as a country, we need to decide which side we are on. We can’t be sailing in both boats at the same time. So, we are either a $5 trillion economy wanting to become a global superpower, or we are a country where sort of traditional historical things is still more important.” – Dr Anirudh Shingal

As Dr. Shingal highlights, India’s position within the WTO and its approach to multilateral trade rules have often reflected a balancing act between its developmental objectives and its aspirations as a global trade leader. India advocates for a fair and equitable trading system that considers the needs of developing countries. However, this stance sometimes contrasts with India’s significant role in global trade, particularly in services, where it is one of the top exporters. The challenge for India lies in aligning its trade policies with its actual economic interests while navigating the complexities of multilateral negotiations. And making use of the data to examine the questions being asked.

Trade and Sustainability

In recent years, the intersection of trade and sustainability has gained prominence. India has traditionally not been in favour of including non-trade concerns in its preferential agreements but within the current climate it is unavoidable and as it has become interlinked. Thus, India is looking for ways to respond domestically, for example, through a carbon trading system. Yet India must be measured and cautious in its approach to empirical analysis, to discover where India will be affected the most, as it adopts their own sustainability conscious policies. It must examine ways it can minimise the adverse impacts without the relying of retaliations that could affect trade, a balance that is often difficult to achieve.

Industrial Policy and Subsidies

India had mapped out an industrial policy in 2014 with its ‘Make in India’ Initiative, recognising the importance of equipping domestic industries to compete within the global market. In 2020, India launched the Production Linked Incentives (PLI) to encourage export-centric manufacturing, highlighting that their commitment to this policy. Especially as India has been a major advocate for industrial subsidies. In our podcast, Dr. Shingal highlights that there are two kinds of responses to industrial subsidies. The first being a race to the top subsidy policy that has implications for public finance and macroeconomics. The second approach will be countervailing duties and not ideal within the world of integrated valued chains.

Hence, it is imperative that India understands the industrial policies of its trading partners and India’s domestic stance on their policy positions. This must be considered whether their government has the mandate to make certain commitments internationally. Stuti Toshi expands further to the WTO, providing a re-definition of countervailing measures and subsidies at the supranational level. There is also a need for greater transparency between countries on what they are doing in balancing trade disruptive policies.


As global trade dynamics continue to evolve, India’s role in the international trading system will be shaped by its ability to navigate these challenges and leverage emerging opportunities. India’s cautious participation in trade rulemaking, its strategies for market access and supply chain diversification, its positions in multilateral forums, and its approaches to sustainability and industrial subsidies will all play crucial roles in determining its future trajectory in global trade. By aligning its trade policies with its broader economic and developmental goals, India can strengthen its position as a key actor in the international economy.


Further Reading 

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.