Double down on trade, economic reforms
A decline in the trade deficit is considered a positive development for it indicates a more competitive economy, as exports rise relative to imports. While it strengthens the currency, it also points to increase in demand for domestic goods and services, which in turn enhances employment generation. Investors’ confidence in the country’s stable economy is boosted. India’s goods trade deficit was at its lowest level in three years in February. It fell to $14.05 billion in February from $22.9 billion the month before. The trade gap is also significantly in contrast with $19.51 billion in February 2024. There was a steep decline in imports by 16% to $50.96 billion from $60.92 billion from last year, while exports contracted by 11% to $36.91 billion from $41.41 billion. Analysts are trying to process if the decline in imports is a result of softening of consumer demand in the country.
India targets $800 billion exports this fiscal year, as against the realised $778 billion last year. The government is actively pursuing international trade negotiations with EU, Canada and other countries. Amidst these positive developments comes a jolt by US President Donald Trump to impose reciprocal tariffs on countries levying ‘excessive tariffs’ on US products.
President Trump, who has been calling India a ‘tariff king’ and arguing for lower tariffs by it, has just reiterated his threat to impose reciprocal tariffs on the country starting April 2. “But the only problem I have with India is they’re one of the highest tariffing nations in the world. I believe they’re...probably going to be lowering those tariffs substantially, but on April 2, we will be charging them the same tariffs they charge us”, he said in an interview. This, when India and the US have agreed to raise bilateral trade to $500 billion by 2030. In 2023, trade between the two nations reached $190.08 billion, yielding a trade surplus of $43.65 billion for India.
As such, India has to seek new trade opportunities to offset the potential impact of US-imposed reciprocal tariffs. Trump’s tariff threats are bound to reshape the global economic order even as China will ramp up its factory work to flood markets with cheap goods. Less exports would mean less business and, hence, a wave of job losses. The US itself suffered over 2 million job losses during 1999-2011 as a result of China shock.
As the April 2 tariff deadline approaches, the Modi government has its task cut out: Lower more tariffs to please Trump, or incur his wrath. It will be a double whammy for developing nations like India with China upping the ante by shipping more and more of cheaper products. Escalating trade tensions could even push the world into another recession amid deceleration of investments and sweeping inflation winds.
India needs to be inventive in boosting the Make in India agenda even as it seeks to raise domestic demand in the economy. The recent tax sops for the middle classes should be followed by more measures such as cuts in duties on imported inputs for India’s manufacturing. As the global competition for foreign investments will intensify in months to come, India needs to remove non-tariff barriers such as red tape, ease labour norms and fast-track land acquisitions. A massive upskilling of workers and infusion of new technology, and governance reforms are a must to fuel its economic growth. India must also hasten reforms or risk lagging others. Do not rest on laurels such as hitting the cumulative $1 trillion investments since April 2000. India has got to try harder.