The reciprocal tariffs imposed by the United States are widely seen as a setback for Indian exports. Yet, viewed through a broader economic lens, they could be the catalyst India needs to push through long-pending reforms and enhance global competitiveness.
India’s trade policy has often been criticised for its protectionist tendencies, which, while safeguarding domestic industry in the short term, has hindered their ability to compete globally. The tariffs, especially on products like steel and aluminum, expose the vulnerability of industry that has long relied on favourable trade terms with the US. Instead of responding with similar measures, India could use this opportunity to modernise its tariff structure.
A key issue with India’s current trade policy is its unpredictability. Frequent changes and inconsistencies deter foreign investors and trading partners. By adopting a more WTO-compliant and transparent tariff regime, India can demonstrate its commitment to global trade norms, creating a stable and attractive investment climate.
Tariff pressures also serve as a wake-up call for Indian manufacturers to address inefficiencies and boost productivity. This is crucial to ensure that Indian products can compete not just in the US but globally. Reducing input costs, simplifying regulations, and fostering innovation should be top priorities.
Moreover, the tariffs highlight the risks of over-reliance on a single market. While the US remains crucial, India must actively pursue trade agreements with the European Union, Asean, and African nations to diversify its export base. Revisiting the Regional Comprehensive Economic Partnership (RCEP) with better safeguards could also prove beneficial.
The challenge aligns with the Government’s vision of making India a global manufacturing hub. Production-Linked Incentive (PLI) schemes could be expanded to support sectors most affected by tariffs. Improving ease of doing business and cutting red tape will be vital for global competitiveness.
However, reforms inevitably bring transitional pain. Indians may face price hikes on imported goods, disruptions in export-oriented sectors, and job losses where adaptation is slow. Inflation could strain household budgets, especially in urban areas reliant on imports. To cushion the impact, reformers must adopt a phased approach, pairing tariff reductions with social safety nets like direct cash transfers and skill development programmes.
By addressing inefficiencies and pursuing trade diversification, the country can emerge more resilient and globally competitive — turning what seemed like a setback into a potential blessing.