India faces a critical juncture in its economic trajectory, as it grapples with the need to bolster manufacturing exports to create employment for millions entering the workforce each year. Amidst this backdrop, reliance on the thriving services sector alone will not suffice to address the needs of the vast unskilled labor force. Construction, as the second-largest employer, continues to absorb casual daily workers, yet more comprehensive solutions are needed.
Historically, India has turned to economic reforms during periods of distress, with the 1991 liberalization serving as a landmark response to a severe financial crisis. In recent times, US President Donald Trump has labeled India as a "tariff king" and a "big abuser" of trade ties, presenting potential unintended consequences that India should capitalize on. Without deeper reforms, India risks being left behind in the global economic landscape.
India's rapid growth from the late 1990s into the 2000s was largely driven by gradual integration into global markets. This included sectors such as pharmaceuticals, software, autos, textiles, and garments, alongside a steady reduction in tariffs. However, India has largely missed opportunities in low-end, unskilled factory work—a domain China has dominated for decades.
The current challenge lies not in expanding the thriving service sector, which constitutes nearly half of total exports, but in addressing the large pool of unskilled workers who lack basic skills for service jobs. The country's tendency to soften trade policies based on rhetoric rather than economic pressure indicates a lack of assertiveness in global trade negotiations.
In response to these challenges, India is actively pursuing free trade deals with several countries, including the UK, New Zealand, and the European Union. Yet, protectionist policies over the past decade have undermined Prime Minister Narendra Modi's Make in India initiative, prioritizing capital- and technology-intensive sectors over labor-intensive ones like textiles.
India's trade-weighted import duties are among the highest globally, posing a significant obstacle to its economic ambitions. An ideal approach would involve a "universal reduction" in import tariffs to align with trading partners and enhance competitiveness.
"We need to boost exports and a tit-for-tat tariff war won't help us." – Rajeshwari Sengupta, an associate professor of economics at Mumbai-based Indira Gandhi Institute of Development Research.
"A trade conflict could hurt us more than others." – Rajeshwari Sengupta
"Potential US tariffs may have become a catalyst for reforms." – Pranjul Bhandari, chief India economist at HSBC.
"If supply chains are rejigged again during the second Trump presidency due to higher tariffs on large exporters, and the world looks for new producers, India may get a second chance." – Pranjul Bhandari
"In comparison to other major economies, India's pre-emptive surrender on multiple trade fronts – without the US imposing a single country-specific tariff – makes it appear exceptionally vulnerable to pressure tactics." – Ajay Srivastava, founder of the Global Trade Research Initiative (GTRI).
"By reducing tariffs, India could become the regional and cross-regional magnet for trade and economic activity, drawing in varied powers in its orbit." – Aseema Sinha, a trade expert at Claremont McKenna College.
"While high-end services are thriving, the majority of the workforce remains uneducated and underemployed, often relegated to construction or informal jobs." – Rajeshwari Sengupta