West Asia Tensions Expose India’s Economic Weaknesses, Says Think Tank

India should move away from repeated subsidy-led responses during global crises and instead focus on long-term structural reforms to strengthen economic resilience, according to a white paper released by Think Change Forum (TCF).

The paper, titled “Economic Ringfence Amid the West Asia Crisis: A Three-Point Agenda for Export Competitiveness, Import Discipline and Trade Defence”, argues that escalating geopolitical tensions in West Asia are exposing deep structural weaknesses in the Indian economy.

According to the report, India remains heavily dependent on imported energy, industrial feedstocks and global supply chains, making it vulnerable to external disruptions.

“The global economic landscape faces a profound stress test,” the report said, adding that “geopolitical volatility in West Asia is driving structural cost-push inflation across essential sectors -- energy, agriculture, and manufacturing.”

Subsidy-Driven Crisis Management Becoming Unsustainable

The white paper warned that India’s traditional strategy of cushioning economic shocks through subsidies and fiscal interventions may no longer be sustainable.

“The traditional fiscal response -- relying on open-ended subsidies to buffer these shocks -- no longer sustains,” the report stated.

Instead of temporary relief measures, the paper advocated structural policy changes aimed at improving domestic manufacturing competitiveness and reducing long-term economic vulnerabilities.

The report suggested that India should use the present geopolitical uncertainty as an opportunity to redesign its industrial and trade strategy for greater resilience.

Inverted Duty Structure Hurting Domestic Manufacturing

One of the major concerns highlighted in the paper is India’s “inverted duty structure”, under which import duties on raw materials are often higher than duties on finished imported goods.

“This is not a theoretical anomaly -- it is widespread across India's manufacturing sector,” the paper said.

According to the report, this structure discourages domestic value addition because manufacturers end up paying more for inputs than importers pay for finished products.

The problem, the paper noted, affects sectors such as electronics, chemicals, textiles and agri-processing.

To address this, the report recommended a “12-month correction” of inverted duties and proposed a flexible tariff system linked to global commodity price movements.

“Dynamic Tariff Calibration proposes that import duties on a defined basket of essential intermediaries be linked to a pre-announced price trigger,” the report said.

The paper argued that such a mechanism would help Indian manufacturers remain competitive during periods of global price volatility without forcing the government to rely on large subsidy packages.

Bringing Natural Gas Under GST

Another key recommendation in the report is the inclusion of natural gas under the Goods and Services Tax (GST) framework.

“The exclusion of petroleum products and natural gas from the GST framework is the single largest structural anomaly in India's indirect tax architecture,” the report stated.

The paper said the current taxation structure creates hidden operational costs for industries including fertilisers, chemicals, food processing and construction.

According to the report, bringing natural gas under GST would reduce cascading taxes and improve overall cost efficiency for Indian manufacturers.

Call for a “Selective Economic Doctrine”

The white paper also proposed what it described as a “Selective Economic Doctrine” for India’s trade and industrial policy.

Under this approach, India would remain open to critical imports and strategic technologies while taking stronger measures against unfair trade practices that harm domestic industry.

“Openness where global integration feeds essential technology, energy, and raw materials. Intervention via immediate trade-remedy enforcement where foreign dumping distorts domestic markets and destroys capacity,” the report said.

The paper argued that India must balance openness with strategic protection of domestic industrial capacity.

From ‘Price-Taker’ to ‘Resilience-Builder’

The report concluded that India should use the current geopolitical turbulence to strengthen domestic industrial ecosystems and reduce dependence on volatile global supply chains.

“India moves from a ‘price-taker’ in global supply chains to a ‘resilience-builder’,” the report said.

According to the paper, long-term structural reforms — rather than short-term subsidies — will be critical for protecting the Indian economy from future global shocks.

(With inputs from ANI)