India for Open Trade

INDIA ON JULY 24 signed a Free Trade Agreement (FTA) with Britain, the fourth FTA to be signed in the past five years. The presence of Prime Minister Narendra Modi is a clear sig­nal that India remains open to trade even as it protects its national interests zealously.

In 2024-25, India’s merchandise and services exports clocked nearly $825 billion, up from $778 in 2023- 24. Total exports accounted for nearly 20 per cent of In­dia’s GDP in 2024-25, making them a very important part of the Indian economy. It is not surprising that India contin­ues to push for free trade even as the possibilities for that are receding globally.

What is being seen today is ‘managed trade’ instead of free trade. The latter never really existed except in textbooks. What was seen from 1991 until, roughly 2015, was the progressive reduction of barri­ers against trade. But over time, the excesses from even this limited liberalisation of trade took their toll. Two countries, the US and China, bear the re­sponsibility for this problem.

India always had the potential to become a great trading nation but never did so. Its long history of ‘export pessimism’, that began in the era of socialist plan­ning, entered its economic decision-making viciously to the point that ‘exports’ became a dirty word. That was until Modi came to the stage. The performance-linked incentives (PLI) scheme was geared to overcome these shortcomings as a first step. PLI were questioned by ‘reputed’ economists on the ground that just as infant industry protection measures had been gamed during the licence-permit-quota raj, they would be abused once again. It was a static, text-bookish view of the world that was proved wrong.

One well-known success story is that of mobile phones. In 2014-15, India was net importer of these devices. In 2024-25, India’s mobile phone exports stood at $24 billion. Starting from a very low base, India’s mobile phone exports have zoomed and the country is now among the top five exporters in the world. The domestic value addition to these is also growing steadily. A decade ago, this was consid­ered an impossible feat. What makes this story different is that an attempt was made and it succeeded. Kenneth Arrow, a Nobel Prize-winning econo­mist, had highlighted this process in a famous paper in 1962 (‘The Economic Implica­tions of Learning by Doing’). But at that time, India was in a delirium of socialist planning and what Arrow had to say was ignored by India’s eco­nomic planners. In contrast, Southeast Asian countries took up the challenge and became exporting power­houses. Vietnam, an erstwhile war-ravaged country, is the latest entrant to that club.

In contrast, even as the first quarter of the 21st century comes to an end, that process of learning is derisively described as screwdrivergiri in India. Export pessimism has turned into an export-hating ideology.

That is changing now. Another area where India is ratcheting up exports is in de­fence manufacturing. As with mobile phones, this was con­sidered impossible. In the case of weapons, exports there is an added burden of ‘moralism’: India is a non-violent country and should not export weap­ons. From missiles (the famed BrahMos is an example) to air defence to artillery systems, countries across the world are interested in what India has to offer. Given another decade of room to expand, India will be on its way to becoming a major defence exporter.

The upshot of these developments is that India remains committed to an open global trading system. Every country has its own interests to protect when it comes to trade. India, too, has its interests. But even in an era of ‘managed trade’, there is plenty for everyone to grow. The danger now is from erst­while champions of free trade turned into mercantilists and those who have abused the global trading system.

Donald TrumpFTAGDPGeoeconomyIndiaIndia-US trade relationsNarendra ModiOpen tradePLI