PYQ Relevance[UPSC 2024] “The West is fostering India as an alternative to reduce dependence on China’s supply chain and as a strategic ally to counter China’s political and economic dominance.’ Explain this statement with examples.” Linkage: This question directly links to India’s recent FTAs with the EU and the U.S., which aim to position India as a reliable alternative supply-chain hub in a multipolar world. It connects trade policy with geopolitical strategy, economic diplomacy, and global value chain realignment, core themes of GS 2 (IR) and GS 3 (External Sector & Growth). |
Mentor’s Comment
India is revising its trade strategy in response to geopolitical tensions, shifting supply chains, and growing protectionism. This topic is highly relevant for GS 2 (India’s foreign policy and international relations) and GS 3 (Indian economy, external sector, globalization, and industrial growth), especially in questions related to trade policy, economic diplomacy, supply-chain resilience, and strategic autonomy in a multipolar world.
Why in the News?
India’s recent signing of the India-EU Free Trade Agreement (January 2026) and an interim trade framework with the U.S. (February 2026) marks one of its most ambitious trade expansions in recent years. These moves reflect a clear departure from its earlier cautious FTA approach and signal a strategic push to position India as a key player in a multipolar global trading system.
How Does India’s Revised FTA Strategy Reflect a Shift in Governance Philosophy?
- Strategic Autonomy Framework: Ensures sovereign decision-making while engaging major economic powers. Expands beyond regional FTAs to advanced economies such as EU, U.S., U.K., UAE, and Australia.
- Market Diversification: Reduces overdependence on single geographies. FTAs projected to cover 22% of exports by 2026, up from 17%.
- Institutional Reform Alignment: Aligns FTAs with domestic reforms under FTP 2023 targeting $2 trillion exports by 2030.
- Value Chain Integration: Facilitates integration into global production networks rather than mere tariff concessions.
How Do Recent Trade Agreements Strengthen India’s Export Competitiveness and Industrial Capacity?
- Tariff Liberalisation: Reduces or eliminates tariffs on over 90% of traded goods, enhancing cost competitiveness.
- Sectoral Boost: Strengthens textiles, leather, pharmaceuticals, chemicals, marine products, electronics, and semiconductors.
- Technology Access: Facilitates access to advanced European machinery and U.S. semiconductor collaboration.
- Production Efficiency: Lowers input costs and enhances regulatory cooperation, improving manufacturing productivity.
- Export Performance Data: Recorded 6.05% annual growth in exports in 2025; total exports reached $825.25 billion.
How Do FTAs Enhance India’s Integration into Global Supply Chains and Digital Trade Ecosystems?
- Intermediate Goods Liberalisation: Reduces barriers on inputs, enabling seamless cross-border production.
- Digital Trade Facilitation: Expands cooperation in e-commerce, services trade, and digital standards alignment.
- MSME Integration: Integrates Micro, Small and Medium Enterprises into global value chains through improved market access.
- High-Growth Sectors: Strengthens pharmaceuticals, electronics, services, and high-technology industries dependent on component mobility.
How Do Trade Agreements Operate as Instruments of Economic Diplomacy in a Multipolar Order?
- Diplomatic Leverage: Enhances India’s role in shaping global trade norms and standards.
- Geopolitical Balancing: Diversifies partnerships across EU, U.S., UAE, Australia, and U.K., reducing vulnerability.
- Investment Attraction: Strengthens investor confidence through predictable regulatory frameworks.
- Strategic Signalling: Projects India as a reliable global trade partner amid supply-chain reconfiguration.
What Institutional and Regulatory Reforms Are Necessary to Maximise FTA Gains?
- Customs Modernisation: Ensures faster clearance and trade facilitation under WTO-compliant mechanisms.
- Standards Harmonisation: Aligns domestic quality infrastructure with global standards.
- Supply Chain Infrastructure: Expands logistics capacity and port efficiency to reduce transaction costs.
- Production-Linked Incentives (PLI): Supports domestic manufacturing scale-up in electronics and high-tech sectors.
- Digital Governance: Strengthens data governance and digital trade regulations.
What Are the Structural Risks and Governance Challenges in Aggressive Trade Liberalisation?
- Domestic Industry Exposure: Increases competition pressure on sensitive sectors.
- Trade Deficit Risk: Expands imports of intermediate and capital goods.
- Regulatory Adjustment Costs: Requires institutional capacity to implement complex trade provisions.
- Labour and Environmental Standards: Necessitates compliance with evolving global norms.
Conclusion
India’s evolving trade strategy reflects a calibrated shift from protection-driven engagement to rule-based, strategic integration with major economies. By aligning FTAs with domestic industrial policy, supply-chain resilience, and digital governance reforms, India seeks to convert trade agreements into instruments of long-term economic transformation. The effectiveness of this approach will depend on regulatory preparedness, institutional capacity, and the ability to balance competitiveness with strategic autonomy in an increasingly fragmented global order.
Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024
