The Changing Global Trade Story

Global trade is no longer just about moving goods at the lowest cost. It is being reshaped by politics,

security, and sustainability goals. What was once a relatively smooth flow of goods is now marked by tariffs, border checks, and disrupted sea routes.

• Trade wars are back on the table. The US has raised tariffs on electric vehicles, solar products, and semiconductors to protect its industries and reduce dependence on China.
• Climate rules are now trade rules. The EU’s Carbon Border Adjustment Mechanism (CBAM) means exporters will soon need to declare and pay for the carbon embedded in their goods.
• Conflicts and chokepoints are squeezing supply chains. The Russia – Ukraine war, unrest in the Middle East, and Red Sea attacks have disrupted shipping, driving up freight costs and adding weeks to delivery times. The Taiwan Strait remains another fragile link in global commerce.

Why India Finds Itself in a Unique Spot?

In this uncertain world, India stands out as both vulnerable and promising.

• A large domestic market makes India attractive not just as a supplier but as a consumer base.
• Policy push through PLI schemes has already drawn global manufacturers in electronics, EVs, and renewables. Apple, for instance, assembled around $22 billion worth of iPhones in India in FY24 , nearly 14% of its global output.
• A strong IT and services backbone adds another layer of resilience, helping multinationals integrate R&D, design, and digital capabilities with manufacturing.
• Yet, challenges remain wherein high logistics costs, stricter compliance ahead of CBAM, and gaps in upstream manufacturing like semiconductors and critical minerals.

 

Global Landscape – Trade Wars & Protectionism

 

What is happening Globally?

US-China Tariff Wars

• Tariffs: EVs 100% (2024), Solar 50%, Chips 50% by 2025
• Spillover: Supply chain diversification (India, Vietnam, Mexico)

EU’s CBAM

• Transition: 2023 – 2025
• Full rollout: 2026 (CBAM certificates mandatory)
• Exporters face rising compliance costs

Global Protectionism

• IMF warns: protectionist measures dragging global GDP growth (~0.3-0.5% loss annually)

 

Why It Matters for Emerging Markets – India Focus

Risks

• Possible loss of EU/US market access (tariffs, CBAM)
• Input costs rising: Red Sea disruption = freight ↑ 130%
• Added compliance burden (carbon reporting, traceability)

 

Opportunities

• Friend-shoring shifts boost India (Apple: $22B iPhones assembled FY24, ~14% global output)
• PLI + domestic market scale – FDI magnet
• Exports FY25: $437.4B merchandise, $820.9B total

 

Geopolitical Conflicts & India’s Economy

 

Russia-Ukraine War

• Russia now supplies 35% of India’s crude oil (FY24), up from less than 2% before the war.
• India still depends on Russia for defense, though imports have fallen from 55% (2015-19) to 38%

(2020-24).

• Food prices, especially edible oils like sunflower oil, rose due to supply disruptions.

Middle East & Red Sea Tensions

• Rerouted ships add 10-14 extra days and raise freight costs by 25-30%, hurting exporters.
• The region supplies ~48.5% of India’s oil (FY25), so instability directly raises energy bills.

Taiwan Strait Tensions

• Taiwan makes 60% of Global chips and 90% of phones and electronics
• India imports 65% of its chips. To cut any reliance it launched a 76000 crore rupees Semiconductor Mission with the support of US & Japan

 

India’s Economic Position – Trade Snapshot (FY2024-2025)

 

Opportunities

• Services exports offset merchandise trade weakness
• MSMEs as the growth engine for exports
• Diversification into UAE, ASEAN, Africa

 

Key Numbers

• Exports (Goods & Services): US$ 820 billion
• Merchandise: US $ 915 billion
• Services: US$ 94.26 billion

Risks

• Partner dependence – tariff, Foreign exchange, geopolitical shocks
• Merchandise weakness may widen deficit

 

Growth Drivers for India

 

Services Exports – The Global Edge

• India’s services exports hit a record US$ 387.5 billion in FY 2024-25, up 13.6% year-on-year. This boom pushed total exports to about US$ 825 billion, marking a solid 6% growth over last year.
• The IT sector was the clear leader, powered by global demand for digital services, cloud, AI, and IT-BPM. New-age sectors like fintech, edtech, health-tech, and Global Capability Centers (GCCs) are also adding fresh momentum, with tier-2 cities such as Coimbatore emerging as new hubs for global talent.
• Looking ahead, IT exports are projected to grow 15-20% annually, helped by international partnerships such as India- UK trade agreements.

 

Manufacturing Push – Make in India & PLI Schemes

• India’s manufacturing GVA grew 11.9% in FY 2024 to ₹24.6 lakh crore, adding millions of new factory jobs (up ~5.9% YoY).
• Despite this momentum, manufacturing still contributes only ~17% of GDP, short of the 25% target set for 2025-30.
• Growth drivers include electronics, automobiles, pharmaceuticals, and metals. Mobile phone exports in particular are rising, making India a key global assembly hub.
• The PLI scheme (worth ₹2.5-2.7 lakh crore) was meant to accelerate growth in electronics, EVs, semiconductors, and pharma. However, progress has been slow, with only ~8% of funds disbursed by late 2024. The government has now allowed the scheme to wind down and is exploring alternative incentive models.

 

Managing Import Dependence – Energy & Critical Sectors

• Energy: India still imports ~85% of its crude oil, leaving energy security highly vulnerable to Middle East and Russia supply risks.
• Electronics/Chips: Over 65% of semiconductors are still imported, despite the ₹76,000 crore India Semiconductor Mission. Domestic fabs are under development but yet to take off at scale.
• Defence: Import reliance is steadily falling from 55% in 2015- 19 to about 38% during 2020-24, thanks to Atmanirbhar Bharat policies and a stronger local defense ecosystem.

 

Negative Impacts on India

 

1. Export Vulnerability

A significant slice of India’s exports heads to just two markets, about 17% to the U.S. and 15% to the EU. That concentrates risk: rising tariffs or protectionist moves in these economies can sharply hurt India’s goods traders.

In 2025, new U.S. tariffs of 50% on two-thirds of Indian exports, like apparel, jewelry, and shrimp are expected to cut order volumes by up to 70%, potentially trimming 0.5% off India’s GDP.

 

2. Commodity & inflation shocks

India now relies almost entirely on foreign oil, 87.8% of its crude needs were imported in 2023-24, climbing to 88.2% in FY 24-25, the highest ever. Fuel is critical for everything from transport to electricity, so any rise in global oil prices immediately stirs inflation here.

Meanwhile, the war in Ukraine disrupted the global supply of fertilizers and edible oils, key imports which has fueled food inflation and squeezed farm input costs back home.

 

3. Investment & business uncertainty

Stiffer U.S. tariffs and protectionist trends have investors on edge. Many global firms are pausing new ventures, and India risks losing its appeal as a reliable manufacturing base.

This turbulence, paired with rising global interest rates, is also lifting borrowing costs for Indian businesses adding to financial strain

4.Strategic dependencies

India still depends significantly on China for crucial imports:

• In electronics, China accounted for about $21.4 billion worth of imports in early 2025, a major chunk of India’s overall electronic component needs.
• In pharmaceuticals, India imported 65% of its API requirements in 2023-24, with nearly 70% of those APIs coming from China, a serious vulnerability for India’s drug industry.

 

Positive Impacts on India

1. China+1 Opportunity

Global companies are looking beyond China to diversify their supply chains. India is emerging as a major winner in this shift. Tech giants like Apple, Foxconn, Dell, and Micron have already committed billions of dollars to set up or expand manufacturing in India. The government’s Production Linked Incentive (PLI) schemes worth over ₹2 lakh crore are driving growth in electronics, pharmaceuticals, and electric vehicles (EVs). For instance, India’s smartphone exports crossed $15 billion in FY24, with Apple alone contributing nearly 50%. This is positioning India as a strong global manufacturing hub.

 

2. Energy Diversification

India has been reducing its dependence on traditional suppliers by diversifying energy imports. Russia became India’s top crude oil supplier in 2023, accounting for over 35% of oil imports, largely due to discounted rates. At the same time, India is accelerating its renewable push today, it ranks 4th globally in installed renewable energy capacity (180+ GW). Massive investments in solar, wind, and green hydrogen are strengthening India’s energy security and cutting dependence on costly fossil fuels.

 

3. Strategic Partnerships

India is also using trade and diplomacy to strengthen its economic position. The India-UAE CEPA (2022) already provides duty-free access to 90% of Indian goods. Strategic alignment with global partnerships like the Quad (US, Japan, Australia, India) has improved technology collaboration, defense cooperation, and investment opportunities, making India more resilient in the face of global conflicts.

 

4. Services Export Growth

India’s strength in services continues to provide stability. IT and consulting exports are growing at 8–10% annually, supported by demand for digital transformation, cloud, and AI-based services. Global Capability Centers (GCCs) are also booming, with over 1,500 multinational companies (including JPMorgan, Microsoft, and Airbus) running their back-end, R&D, and digital operations from India. Services exports crossed $341 billion in FY24, making them a critical cushion against merchandise trade volatility.

 

Strategic Perspectives on India’s Path Forward

The shifts in global trade and geopolitics have opened up new opportunities for India, but they also come with challenges that need careful navigation. While the world increasingly looks to India as a stable and reliable partner, the country must ensure that these opportunities are not just short-lived benefits, but stepping stones toward long-term growth.

 

India’s position in a changing world: balancing risks and opportunities

Opportunities

The reconfiguration of global supply chains has positioned India as a trusted alternative to China, especially for companies looking to reduce their dependence on a single market. This has already translated into high-profile investments in electronics, semiconductors, and manufacturing.

At the same time, India’s digital economy and services sector remain strong pillars of growth. With IT-enabled services, consulting, and Global Capability Centers (GCCs) expanding rapidly, India continues to serve as a global back office and increasingly as a hub for innovation.

On the energy front, India is advancing its place in the renewable energy transition, now ranking among the top countries in installed capacity. As the world shifts towards sustainability, India has an opportunity to establish leadership in green technologies and solutions.

Further, the emergence of a multipolar world, where global power is distributed across several countries, creates more space for India to build meaningful partnerships.

Engagements with the US, EU, Japan, Australia, and West Asia give India a unique platform to shape the global agenda rather than simply adapt to it.

Finally, India’s young workforce represents a powerful demographic advantage. If provided with the right skills and opportunities, this generation could power growth across industries and sustain India’s rise over the coming decades.

 

Risks

However, these opportunities come with important risks. A key concern is the overdependence on temporary geopolitical shifts, such as the current trade tensions or energy price advantages. If global alignments change, India could lose some of these short-term gains.

Domestically, infrastructure bottlenecks and policy unpredictability remain stumbling blocks for long-term investors. While reforms have been introduced, delays in implementation and regulatory uncertainty can erode business confidence.

Equally critical is the challenge of education and skills development. Without significant investment in human capital, India risks falling short of preparing its youth for industries of the future, whether in advanced manufacturing, artificial intelligence, or green technologies.

There is also the perception risk: if India does not move fast enough, it may be seen by global companies merely as a “backup option” to China, rather than a primary hub of innovation and production.

 

India’s success will depend on its ability to balance domestic resilience with global integration, seizing opportunities abroad while building a strong, competitive, and inclusive economy at home. If managed well, the next two decades could see India move decisively from being an emerging power to a central pillar of the global order.

 

 

Sectoral Impact Analysis

 

Manufacturing

• Electronics: India’s electronics exports crossed USD 29 billion in FY24, led by smartphones (Apple alone exported >USD 12 billion from India). The PLI scheme (₹2 lakh crore) is driving investments by Foxconn, Dell, and others. However, heavy dependence on imported semiconductors and high logistics costs still pose risks.
• Textiles: Exports (~USD 40 billion in FY24) face headwinds from the EU’s Carbon Border Adjustment Mechanism (CBAM), which will raise compliance costs. At the same time, global buyers looking to diversify from China are exploring India.
• Auto Components: The sector exported USD 22 billion in FY24. Opportunities lie in EV components (battery, motors), supported by PLI, though global demand fluctuations could slow growth.

Pharmaceuticals

• India is the world’s largest supplier of generics, exporting over USD 25 billion annually.
• However, ~70% of active pharmaceutical ingredients (APIs) come from China, creating supply risks. India’s PLI scheme for APIs and projects like the Bulk Drug Parks aim to reduce this dependency.
• Export opportunities are growing in the US and EU as they look to reduce overreliance on China for medicines.

Energy

• Crude Oil: India imports 85% of its crude needs. Russia emerged as the largest supplier in 2023, providing over 40% of imports at discounted rates, reducing import bills.
• Renewables: India is the 4th largest globally in installed renewable capacity (178 GW in 2023). It has set a target of 500 GW by 2030, creating investment opportunities in solar, wind, and green hydrogen.

Defense

• India remains the world’s largest arms importer (11% of global share, 2019- 23).
• To counter this, the government is pushing indigenization: defense exports reached a record ₹21,000 crore in FY24 (10x growth in a decade).
• Indo-US defense deals, including the GE-HAL jet engine co-production and joint drone projects, are strengthening domestic capability while reducing dependency.

Services

• IT & Consulting: India’s IT exports crossed USD 200 billion in FY24, growing at 8-10% annually, supported by demand for AI, cloud, and cybersecurity.
• Global Capability Centers (GCCs): India hosts 1,580+ GCCs employing 1.6 million professionals, expected to grow to 2,000+ by 2030.
• Fintech: India is among the world’s largest fintech markets, with UPI handling 10+ billion monthly transactions in 2024 and expanding globally (adopted in Singapore, UAE, France).

 

Outlook for India

 

Short-Term

• Inflationary Pressures: Rising oil prices remain a concern as India imports ~85% of crude. A USD 10/barrel increase in crude raises India’s import bill by USD 15 billion annually, pushing up inflation by 30-40 bps (RBI estimate).
• Commodity Shocks: Global disruptions in fertilizer, edible oil, and metals markets could widen India’s FY25 current account deficit, currently projected at ~1.5-2% of GDP.
• Export Disruptions:

– Textiles: EU’s Carbon Border Adjustment Mechanism (CBAM) may impact India’s USD 40 billion textile exports unless compliance costs are managed.

– Chemicals: Exports (~USD 29 billion in FY24) face demand volatility from the US/EU slowdown.

– Engineering Goods: India’s engineering exports (~USD 110 billion in FY24) are seeing order slowdowns, especially in Europe.

Medium-Term

• Supply Chain Diversification: With global firms de-risking from China, India is expected to attract USD 15-20 billion annually in FDI into electronics, auto components, and semiconductors (EY 2024 forecast).
• Gulf Linkages: India-GCC trade crossed USD 160 billion in FY23, driven by oil, petrochemicals, and food security. A proposed India-GCC FTA could add USD 60 billion in trade by 2030.
• ASEAN Partnerships: India’s trade with ASEAN reached USD 131 billion in FY23. Opportunities exist in electronics, palm oil, and defense partnerships (especially with Vietnam & Indonesia).
• EU Collaboration: The ongoing India-EU FTA talks, if successful, could expand bilateral trade (currently USD 135 billion in FY23) by 50% in 5 years, with gains in textiles, IT, and EVs.

Long-Term

• Manufacturing Hub: With the PLI schemes (~₹2 lakh crore allocation) and labor cost advantages, India could expand its share of global manufacturing from 3% today to 5-6% by 2030, unlocking USD 500 billion+ in output.
• Services Powerhouse: IT exports (USD 200+ billion in FY24) and GCC growth will keep India central in AI, digital services, and fintech. India’s UPI stack being adopted globally strengthens this trend.
• Geopolitical Balancing: India’s role in the Quad, BRICS+, IPEF, and G20 leadership positions it as a bridge between the Global North and South. This balancing act enhances trade, technology access, and security partnerships.
• Growth Trajectory: If reforms in infrastructure, logistics, and labor continue, India could sustain 6.5-7% annual GDP growth, positioning itself as the third-largest economy by 2030 (USD 7 trillion+ GDP).

 

Policy & Strategic Recommendations

 

For Government

1.Accelerate FTA Negotiations (EU, ASEAN):

• India’s current FTA coverage accounts for ~30% of trade, while competitors like Vietnam have access to 70%+ of global GDP through FTAs.
• Potential Gain: A successful India-EU FTA could increase exports by USD 50-60 billion annually by 2030 (World Bank estimate).

 

2.Build Semiconductor, Electronics & Energy Self-Reliance:

• India imports USD 65-70 billion worth of electronics annually (second only to oil).
• Semiconductor demand expected to hit USD 100 billion by 2030, but India’s local manufacturing is <10%.
• Policy Push: Expand PLI incentives, build talent pools (VLSI design, fab engineers), and invest in strategic minerals security for batteries and chips.
• Energy: Enhance solar manufacturing capacity (target: 280 GW by 2030), boost green hydrogen, and diversify LNG imports beyond Qatar.

 

3.Invest in Ports, Logistics, and Infrastructure:

• India’s logistics costs are 13-14% of GDP, compared to 8-9% in advanced economies.

Priority Actions:

• Speed up PM Gati Shakti projects.
• Enhance port connectivity (Sagarmala).
• Double container handling capacity by 2030.

Expected Impact: Reduce logistics cost to 9-10% of GDP, saving USD 50 billion+ annually.

 

4.Reduce Import Dependence on China (Electronics, APIs, Rare Earths):

• China supplies ~70% of India’s API imports (pharmaceutical backbone) and 85% of solar modules.

Critical Action Areas:

• Incentivize domestic API clusters under PLI Pharma scheme.
• Develop rare earth processing facilities (India has reserves but lacks refining capacity). Encourage “China+1” sourcing from Vietnam, Taiwan, and Africa.

 

For industry

 

1.Diversify Export Markets Beyond US/EU:

• US & EU account for ~40% of India’s exports, making India vulnerable to Western demand shocks.

Action:

• Expand trade with Africa (USD 100B opportunity by 2030) and Latin America.
• Strengthen presence in ASEAN & Gulf markets (fastest-growing demand centers).

 

2.Strengthen Supply Chain Risk Management:

• Post-COVID, companies must reduce single-country sourcing risks.

Best Practices:

• Multi-country sourcing strategies (Vietnam, Mexico, Eastern Europe). Digital supply chain monitoring using AI & blockchain.

Example: Indian auto firms adopting dual-sourcing for chips & batteries to mitigate shortages.

 

3.Increase R&D and Automation Adoption:

• India’s R&D spend is 0.7% of GDP (vs. 2-3% in OECD).

Industry Push:

• Invest in AI, IoT, robotics for smart manufacturing.
• Collaborate with academia and government on patent creation.

Target: Raise R&D spend to 1.5% of GDP by 2030, enabling global competitiveness in EVs, aerospace, biotech.

 

4.Explore Opportunities in Renewable Energy, EV, and Digital Exports:

• Renewables: India plans 500 GW clean energy capacity by 2030, huge market for solar, wind, hydrogen.
• EVs: Domestic EV penetration expected to grow from 2% today to 30% by 2030, creating export potential in 2- wheelers and batteries.
• Digital Exports: IT/ITES exports crossed USD 200B in FY24; next growth drivers include AI solutions, fintech, SaaS, and UPI – linked platforms.
• Recommendation: Industry should position India as a “digital + green export hub” for emerging markets.

 

Conclusion

Global trade wars and geopolitical conflicts present India with a paradox: they bring both risks and opportunities. On the one hand, external shocks such as commodity price volatility, supply disruptions, and inflationary pressures highlight India’s continued vulnerabilities, particularly its dependence on imported energy (India imports ~85% of its crude oil demand) and Chinese-origin inputs like APIs (accounting for ~65% of India’s bulk drug imports) and electronics (over $27 billion imports from China in FY24). On the other hand, these very disruptions are creating openings for India to position itself as a trusted partner in diversified global supply chains, expand its digital and services exports, and strengthen its diplomatic influence in a multipolar world.

Strategic thinkers have highlighted two contrasting but complementary perspectives. One view emphasizes caution, Raghuram Rajan has repeatedly warned India against over-reliance on temporary external shifts, urging reforms in education, labor, and land markets and a strong push for innovation-driven growth. Without these, supply chain gains may prove short-lived.

The other perspective, echoed by Fareed Zakaria, is more optimistic: the rise of a multipolar world and the rebalancing of global power dynamics create unprecedented space for India to step up as a leading global economic and strategic player. India’s services exports touched $341 billion in FY24, growing even as global demand slowed, and are projected to cross $400 billion by FY26 (RBI, WTO). Meanwhile, India’s renewable energy capacity has already crossed 180 GW (MNRE, 2024) and is expected to reach 500 GW by 2030, enhancing both domestic energy security and global climate leadership.

India is also advancing toward its $5 trillion economy target by 2027-28 (IMF, MoF estimates), with manufacturing, exports, and digital transformation set to drive the next phase. Its GDP growth of 7.6% in FY24 (IMF) makes it the world’s fastest-growing major economy, reinforcing its attractiveness for investment. Ultimately, India’s growth story will depend on how well it balances resilience with opportunity. This means using global shifts as short-term accelerators, while steadily building the domestic capabilities that will sustain long-term leadership. If India succeeds in combining external advantages with strong internal foundations, it can emerge not just as an alternative to existing powers but as a central hub in the global economy and a shaper of the international order.[/vc_column_text]