Introduction

 

The Indo-Pacific—spanning the Indian and Pacific Oceans—is a critical region for global trade, energy security, and geopolitical competition. Home to over half the world’s population and accounting for nearly 60% of global GDP, it serves as a central hub for maritime trade routes and economic activity. The emergence of China, characterised by its Belt and Road Initiative (BRI) and expanded military presence, has intensified great power competition in the region, particularly with the United States.

 

India’s trade diplomacy within the Indo-Pacific region is driven by two strategic imperatives: facilitating economic advancement and strategically containing China’s regional ascendancy. The statistics are revealing. In 2023, India’s trade-to-GDP ratio was recorded at 31%, a figure substantially below those of neighbouring nations such as Vietnam at 158% and Thailand at 112%. India faced a significant trade deficit of $83 billion with China in Fiscal Year 2023, which, alongside border tensions, necessitates stronger strategic alliances.

 

 India’s Strategic Interest in the Indo-Pacific

 

India’s strategic and active engagement in the Indo-Pacific region is closely linked to its economic and security objectives. To achieve its aspiration of becoming a $10 trillion economy by 2030, it must forge strong trade partnerships and ensure a secure maritime environment. The Indo-Pacific, a crucial maritime region featuring major sea routes for communication and access to vital resources, is therefore of paramount importance.

 

In the evolving strategic landscape, the Association of Southeast Asian Nations (ASEAN) holds increasing significance. India shares a distinctive and multifaceted partnership with ASEAN—encompassing trade, investment, connectivity, tourism, digital innovation, and skill development. ASEAN centrality receives India’s strong and consistent support, a principle now also embedded within the Quad, where India contributes a unique perspective as its only non-U.S. ally. As both a direct neighbour and a security partner, India remains deeply engaged with ASEAN’s regional priorities.

 

ASEAN member states account for 11% of India’s global trade, reflecting significant economic interdependence. According to the 2024 Asia Power Index, India ranks tenth among 27 nations in economic interactions, highlighting both recent progress and the potential for deeper integration. The findings underscore the necessity for enhanced strategic engagement and economic diplomacy to fully capitalise on the dynamic markets of the Indo-Pacific—and indicate India’s growing ambition to expand its role in regional trade diplomacy.

 

At the same time, China’s decisive actions pose significant security challenges. The Belt and Road Initiative has expanded China’s influence in India’s immediate region, including Sri Lanka, Nepal, and Bangladesh. Border disputes, notably those of May 2020 and November 2022, along with China’s ongoing obstruction of India’s entry into the Nuclear Suppliers Group and its ambitions within the UN Security Council, have considerably heightened tensions in the bilateral relationship. India’s economic diplomacy seeks to strengthen resilience and build strategic alliances to counterbalance China’s regional ascendancy.

 

The Quadrilateral Security Dialogue (QUAD)

 

In 2007, former Japanese Prime Minister Shinzo Abe proposed the Quadrilateral Security Dialogue (Quad), bringing together the United States, India, Japan, and Australia. The objective was to facilitate a “free and open Indo-Pacific” through a series of discussions and deliberations focusing on maritime cooperation. Geopolitical tensions in the Indo-Pacific, heightened by China’s growing influence in the South China Sea and its Belt and Road Initiative (BRI), resulted in the formation of the Quad as a response. While initially effective in disaster relief, the Quad struggled with multiple issues. Facing Chinese pressure, Australia withdrew in 2008, and India’s policy of non-alignment added further complexities, leading to the Quad’s effective disbandment, demonstrating the challenges of establishing multilateral security alliances in the region.

 

Driven by escalating geopolitical tensions, particularly China’s military expansion in the South China Sea and border clashes like Doklam with India, the Quad was revitalised at the 2017 ASEAN Summit. This resurgence indicated shared concerns about China’s growing economic power and its challenge to established global norms. Over time, regular summits and discussions at the foreign minister level have become a characteristic feature, with the Quad’s focus broadening to include key technologies, climate change resilience, and diversifying supply chains.

 

The Quad seeks to strengthen India’s Act East Policy and the SAGAR initiative, thereby enhancing its strategic position within the Indo-Pacific and addressing the challenge posed by China’s increasing regional hegemony, particularly following the 2020 Galwan clash. It bolsters India’s maritime security, trade diplomacy, and access to advanced technologies, although it requires a careful balance between maintaining strategic autonomy and pursuing deeper alignment. The Quad’s promotion of a multipolar Indo-Pacific reinforces India’s stance against the expansion of Chinese influence while also contributing to regional stability. Furthermore, the cultivation of democratic alliances significantly elevates India’s international stature.

 

Efforts such as the QUAD Vaccine Partnership and collaborative endeavours in cybersecurity and telecommunications aim to counterbalance China’s technological advancements. The Production Linked Incentive (PLI) initiatives in India, encompassing sectors such as electronics and drones, align seamlessly with the QUAD’s emphasis on enhancing supply chain resilience. India can strengthen its defence through the QUAD’s joint military exercises, like the Malabar drills, and intelligence sharing. Projects such as the India-Myanmar-Thailand Trilateral Highway serve as a counter and an alternative to China’s BRI. By participating in the Quad as one of its crucial partners, India can maintain a competitive stance with China while preserving pragmatic diplomatic ties.

 

Indo-Pacific Economic Framework for Prosperity (IPEF)

 

On 23 May 2022, the ‘Indo-Pacific Economic Framework for Prosperity’ was inaugurated by the United States in Tokyo, with thirteen founding partners, including India. Its objective is to advance economic collaboration across four principal domains: trade, supply chains, clean energy and infrastructure, and tax and anti-corruption measures. The IPEF, which accounts for 40% of global GDP, distinguishes itself from conventional trade agreements by emphasising resilience, sustainability, and inclusivity over mere tariff reductions. This methodology embodies insights from the United States’ exit from the Trans-Pacific Partnership in 2017. The framework emerges as a development from the Biden administration’s strategic “Pivot to Asia,” while also reflecting Japan’s Indo-Pacific vision initially expressed by Shinzo Abe in 2007.

 

The IPEF serves as a strategic counterweight to China’s economic influence, particularly when contrasted with the Belt and Road Initiative and China’s role in RCEP, which India declined to join in 2019. By intentionally excluding China, the IPEF aligns with the QUAD goal of promoting a free and open Indo-Pacific. This strategic positioning directly addresses China’s actions in the South China Sea and its methods of economic coercion. India’s engagement significantly enhances its Act East Policy and strengthens relationships with ASEAN and Quad partners. Furthermore, the IPEF’s emphasis on augmenting supply chain resilience, particularly through the 2023 Supply Chain Resilience Agreement, aims to reduce India’s dependence on Chinese supply chains in critical industries such as pharmaceuticals and technology. Nevertheless, the current elevated tariffs and protectionist measures in India could impede the realisation of the full advantages offered by the IPEF unless these are harmonised with the framework’s inherent flexibility. The IPEF also reinforces India’s geopolitical stature by furthering economic integration and partnerships while maintaining its strategic independence in the context of the ongoing U.S.-China rivalry.

 

Free Trade Agreements with ASEAN and Australia

 

India’s endeavour to establish Free Trade Agreements (FTAs) with key strategic partners, such as ASEAN and Australia, signifies an important element of its foreign economic policy, designed to stimulate economic integration and enhance its geopolitical stature in the Indo-Pacific region and beyond. The ASEAN-India Free Trade Area (AIFTA), which has been in effect since 2009, serves as a notable illustration of this ambition. AIFTA has been instrumental in systematically reducing tariffs and various trade barriers between India and the ten ASEAN member states, covering the domains of goods, services, and investment. This approach has led to a significant enhancement in bilateral trade, achieving an impressive total of $122.67 billion in the fiscal year 2023-24. The burgeoning trade dynamics have unveiled marked disparities, particularly a persistent trade deficit nearing $44 billion for India. While some sectors like pharmaceuticals, automobile components, and agricultural products have shown growth in exports, numerous challenges persist. Non-tariff barriers, including sanitary and phytosanitary regulations, technical standards, and complex rules of origin, continue to impede the smooth flow of trade. The intricate customs regulations across different ASEAN nations also pose significant operational hurdles for Indian businesses.

 

In contrast, the India-Australia Economic Cooperation and Trade Agreement (ECTA), established in 2022, represents a significant step forward in enhancing bilateral economic collaboration. The extensive provisions of ECTA for eliminating tariffs on a substantial majority of goods traded between the two countries provide India with improved access to vital resources, including critical minerals, energy, and cutting-edge technologies. The arrangement offers Australia a considerable opportunity to engage with India’s vast and rapidly growing consumer market. In addition to the immediate economic benefits, both AIFTA and ECTA contribute to advancing strategic objectives for India.

 

The significance of these FTAs lies in their ability to expand India’s trade portfolio, reduce reliance on specific markets, and enhance the robustness of supply chain resilience. Furthermore, in an era characterised by geopolitical instability, these agreements serve as essential tools for countering the economic hegemony of other major powers and strengthening India’s position as a key player in the evolving global economic framework. They promote improved integration within regional and global value chains, facilitate the transfer of technology and innovation, and elevate India’s diplomatic presence in international arenas. The Free Trade Agreements that India has established with ASEAN and Australia go beyond mere trade liberalisation; they are integral to a comprehensive approach aimed at fostering economic development, enhancing geopolitical standing, and reinforcing its strategic independence on the global stage.

 

India’s Trade Diplomacy as a Countermeasure to China

 

India’s trade diplomacy in the Indo-Pacific, a region that constitutes 63% of global GDP and over 50% of international maritime trade, has become a fundamental aspect of its foreign policy, demonstrating its aspiration to be a significant economic force. Evolving from the Look East Policy established in the 1990s, India’s involvement with the region has intensified with the introduction of the Act East Policy in 2014. This initiative focuses on economic, strategic, and cultural aspects to strengthen connections with Southeast Asia and beyond. This development has established India as an engaged collaborator in efforts such as the Quad and the Indo-Pacific Economic Framework for Prosperity (IPEF), thereby enhancing its influence in advocating for a rules-based regional order.

 

Through the strategic utilisation of its dynamic IT and pharmaceutical industries, India has established a distinct position within global value chains, with trade agreements such as the India-ASEAN Free Trade Agreement enhancing export opportunities. The formation of strategic alliances with Japan and Australia, exemplified by the Asia-Africa Growth Corridor, spotlights India’s commitment to sustainable infrastructure development, providing viable alternatives to China’s Belt and Road Initiative (BRI).

 

Nonetheless, India’s aspirations in trade face significant hurdles. In terms of economic performance, it lags behind China, which recorded a trade volume with ASEAN of $975.3 billion in 2022, compared to India’s $131.5 billion. Additionally, China’s substantial foreign direct investment continues to worsen this disparity. India’s protective economic measures, marked by high import tariffs averaging 13.8%, along with its decision to withdraw from the RCEP due to concerns regarding Chinese imports, have limited market access and obstructed integration within regional trade frameworks.

 

The complexities of geopolitical tensions, particularly highlighted by the 2020 Galwan Valley clash, impede India’s ability to navigate the delicate interplay between economic collaboration and strategic competition with China. Furthermore, India’s limited capacity to finance large-scale infrastructure projects undermines its competitiveness against the extensive influence of the BRI. Addressing these challenges through innovative trade initiatives and regional integration is vital for India to strengthen its economic presence in the Indo-Pacific.

 

The Way Forward

 

India’s strategic and trade diplomacy in the Indo-Pacific is at a pivotal moment amid ongoing geo-economic shifts. India must adopt innovative strategies to reinforce its regional influence, narrowing the economic gap with China, navigating rising protectionism, managing geopolitical frictions, and overcoming infrastructure deficits. Key initiatives aligned with the Act East Policy and the SAGAR (Security and Growth for All in the Region) vision focus on deepening economic ties, promoting sustainable development, and countering China’s Belt and Road Initiative (BRI) through strategic partnerships and forward-looking frameworks.

 

Enhancing Infrastructure Collaboration

 

Collaborating with Quad partners—Japan, the United States, and Australia—India should seek to revitalise the Asia-Africa Growth Corridor (AAGC) as a strategic counter to China’s Maritime Silk Road. This could involve establishing a dedicated task force within the appropriate line ministry to streamline project execution, exploring joint funding initiatives with Japan in Southeast Asia and Indian Ocean coastal nations—particularly in ports, roadways, and renewable energy—and leveraging the Quad’s infrastructure coordination group to align investments with regional needs, including clean energy efforts in Indonesia and Vietnam.

 

To enhance its maritime connectivity and diversify port access, India could contemplate joining Japan’s Partnership for Quality Infrastructure (PQI). As a Japan-led initiative promoting transparent and sustainable infrastructure, PQI offers opportunities for co-financing strategic projects—such as a deep-sea port in Indonesia—as viable alternatives to China-funded ports.

 

Formulating a Comprehensive Digital Trade Framework

 

The rapidly expanding digital economy, projected to reach $2 trillion in e-commerce by 2030, presents yet another avenue for strategic engagement. India is poised to lead efforts towards establishing an Indo-Pacific Digital Trade Agreement (IPDTA) within the ASEAN-India framework, with a focus on enabling cross-border data flows, strengthening cybersecurity, and formulating shared digital standards. Collaborating with Singapore and South Korea to establish reliable digital infrastructure, such as 5G networks, while also empowering Indian SMEs through capacity-building programmes inspired by Canada’s trade initiatives, will significantly improve market access. A pioneering digital trade corridor with Singapore has the potential to enable effortless e-commerce and data exchange, thereby establishing India as a frontrunner in the realm of digital trade.

 

Promoting Sustainable Trade Practices

 

Advancing sustainable trade practices will set India apart from the widely debated Belt and Road Initiative of China. By initiating a Green Trade Initiative within the SAGAR framework, India has the potential to export cutting-edge clean energy solutions, including solar panels, to ASEAN nations. Collaborating with Australia to ensure the stability of critical mineral supply chains for batteries will reduce dependence on Chinese markets. Furthermore, a regional fund, supported by the Quad, aimed at fostering climate-resilient infrastructure, can provide vital assistance to Pacific Island Countries. Implementing solar-powered microgrids in the Maldives would significantly enhance energy security while simultaneously mitigating China’s regional influence.

 

Enhancing Regional Cohesion

 

To enhance regional integration while abstaining from participation in the Regional Comprehensive Economic Partnership (RCEP), India could engage in bilateral free trade agreements (FTAs) with Vietnam, Indonesia, and the Philippines, focusing on reducing tariffs on pharmaceuticals and IT services. Strengthening the India-ASEAN Comprehensive Strategic Partnership through trade facilitation initiatives, such as single-window customs clearance, and integrating the India-Middle East-Europe Economic Corridor (IMEC) with the India-Myanmar-Thailand Trilateral Highway will establish resilient trade pathways. A free trade agreement with Vietnam, for example, has the potential to boost India’s pharmaceutical exports by leveraging the opportunities within Vietnam’s healthcare market.

 

Utilising the Quad and Squad Frameworks

 

Ultimately, utilising the Quad and the emerging Squad frameworks, which include the United States, Australia, Japan, and the Philippines, will enhance India’s strategic influence. The establishment of a Quad Trade and Technology Council to harmonise policies regarding semiconductors and clean energy, the consideration of Squad inclusion to safeguard trade routes in the South China Sea, and the organisation of annual Indo-Pacific Trade Summits will significantly bolster supply chain resilience. A supply chain initiative supported by the Quad, drawing upon the Australia-Japan-India framework, has the potential to diversify essential technology networks, thereby mitigating the economic coercion exerted by China.

 

These collective efforts enhance India’s trade diplomacy, promoting a multipolar Indo-Pacific framework while simultaneously addressing the strategic rivalry with China. By aligning domestic reforms with regional aspirations, India has the potential to consolidate its status as a premier economic force within the region. These initiatives correspond with India’s vision for a liberated and accessible Indo-Pacific, highlighting the significance of a rules-based trading system and maritime security. By emphasising sustainable and refined alternatives to China’s Belt and Road Initiative, India could cultivate trust with regional partners cautious of Beijing’s debt-driven strategies. The enhancement of digital trade and collaborative infrastructure initiatives will position India as a leader in emerging sectors, thereby narrowing the economic gap with China. India must also tackle local challenges, such as refining regulatory frameworks and minimising tariffs, to fully realise this potential.

 

 

 

 

Author Brief Bio:

 

Ruchira Kamboj: Ambassador Ruchira Kamboj is a distinguished officer of the 1987 batch of the Indian Foreign Service. She served as India’s first female Permanent Representative to the United Nations in New York until May 2024, where she led key initiatives and made history in December 2022 by becoming the first Indian woman to preside over the UN Security Council. Her trailblazing path includes being India’s first female Ambassador to Bhutan, High Commissioner to South Africa, and Permanent Representative to UNESCO in Paris—each role marked by significant contributions to India’s strategic and cultural diplomacy. From 2011 to 2014, she served as India’s first woman Chief of Protocol, overseeing high-level diplomatic engagements that enhanced India’s global profile. Earlier in her career, she held key postings in Paris, Mauritius, New York, and Cape Town, and from 2009 to 2011, she was seconded to the Commonwealth Secretariat in London as a staff officer to the Secretary-General. She is a Member of the Governing Council of India Foundation.

 

Chitra Shekhawat: Ms. Chitra Shekhawat is currently working as a Research Fellow at India Foundation. She completed her Masters and B. A. Honours in Economics from St. Xavier’s College, Jaipur where she was elected as a Cultural Secretary of the Student Council. Her area of interest lies in the fields of development economics, good governance, public policy and advocacy.

 

 

 

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The dominant paradigms for understanding international relations, particularly after the end of the Second World War, have been realism and neorealism. Given the numerous conflicts that have ravaged the world, the international relations community desperately sought to understand the root causes of these conflicts so that they could be avoided. Human nature was seen as one of the most important causes behind the conflict-seeking behaviour of countries in the international system. However, this alone was insufficient, leading to the emergence of neorealism. The dominant cause was now understood to be the anarchy within the international system, or the absence of a central authority capable of enforcing norms and rules. Given that states are acutely aware of their sovereign status, stemming from the signing of the Treaty of Westphalia, bartering away their sovereignty and the most supreme functions of governments was unacceptable.

 

As a result, despite the establishment of an organisation like the United Nations, the enforcement of norms and rules could never truly occur, leading to the prevalence of ‘anarchy’ and compelling states to prioritise their national interests above all else. In this context, liberalism emerged, focusing on finding mechanisms to avoid conflict. The priority areas envisaged by the liberal international relations theory included creating mutual dependencies through trade and investment, which would reduce the impetus for military disputes among states. As countries in the 1970s and early 1980s recognised that economic prowess could no longer be viewed solely as an aspect of soft power, the necessity for creating mutual dependencies through trade and investment also arose.

 

Trade and investment have contributed to improving development indicators in various countries. This has allowed nations, by leveraging their economic growth rates and central roles as trade hubs, to increase in significance and potentially usher in multipolarity, starting from the late 1990s. Countries like India, China, and South Korea, to name a few, found themselves sharing the high table of decision-making in international relations. However, as time progressed, it also became evident that trade created dependencies, because countries possess comparative advantages in production, which subsequently become leverage points over others. The case of India’s trade with China is pertinent in this context.

 

As the U.S. renegotiates its role as the dominant player in the existing world order and leverages tariffs and trade to secure gains for itself first, prioritising its interests above those of friends, partners, and foes alike across the spectrum of international relations, countries are now desperately seeking stable partners in economics and trade. Despite being the world’s second-largest economy, China does not have an excellent track record of fair trade or granting equal market access to its partners. Thus, understanding how India navigates the tricky challenge of its trade dynamics with China and the U.S., neither of which has served as a role model for fair trade, becomes essential for grasping the geo-economic challenges of the current epoch in history.

 

While trade has often been viewed as a mechanism for reducing the potential for military conflict, the fact remains that due to tariffs, trade has also become a domain leading to ever-increasing economic and, consequently, political conflicts. In the current epoch of history in which the world is living, the concept of tariffs as tools to further one’s economic growth and agendas, directly at the expense of others, is particularly associated with the U.S., especially under Trump 2.0. However, the other great power in the system, albeit not yet the leader of the international system—i.e. China—is no different. India’s case study becomes relevant to understand better the evolving dynamics of trade, tariffs, and geopolitical contestation.

 

As one of the leading actors of the existing international order, India stands as an economic heavyweight in its own right. India’s USD 4.19 trillion nominal GDP ranks it behind only the U.S., China, and Germany.^[1] The World Economic Outlook from the International Monetary Fund (IMF) projects growth of 6.2% in 2025, reinforcing India’s position as a global economic driver and the world’s fastest-growing major economy.^[2] India has active trade partnerships with both the U.S. and China. The U.S. has remained India’s largest trading partner for the fourth consecutive year in 2024-25, with bilateral trade valued at USD 131.84 billion, while the country’s trade deficit with China widened to USD 99.2 billion during the same period. Generally, India has maintained trade surpluses with the U.S., while it has consistently suffered trade deficits with China. The following graphs, which show India’s trade with the U.S. and China over the last 10 years, offer a clearer picture of the nature of trade ties India has with the two leading players in the current international order.

 

Graphs 1 and 2: Comparing India’s merchandise trade with the U.S. and China, respectively

 

Source: United Nations COMTRADE database

 

As shown in graphs 1 and 2, India consistently maintained a trade surplus with the United States between 2014 and 2024, while running a persistent trade deficit with China. This contrasting trend warrants closer examination. India’s exports to China peaked at USD 28.14 billion in 2021 but declined sharply to USD 14.90 billion by 2024—a 14.5% drop from 2023 alone. Meanwhile, imports from China have risen steadily, from USD 55.31 billion in 2011 to USD 117.68 billion in 2024, reaching a high of USD 118.77 billion in 2022. India primarily exports iron ore, engineering goods, chemicals, and marine products to China, whereas its imports are dominated by electrical machinery, nuclear reactors, organic chemicals, plastics, and components.^[3] Overall, bilateral trade between the two countries has expanded from USD 73.39 billion in 2011 to USD 132.58 billion in 2024.

 

Despite a dip in 2023, trade volumes between India and China remain robust^[4]. Nevertheless, India has consistently experienced a trade deficit with China, which has widened drastically from USD 27.23 billion in 2011 to USD 102.78 billion in 2024. In the context of this trade deficit, it is pertinent to note that India has a limited export basket of iron ore, cotton, shrimps, and primarily agricultural products. However, market access barriers to Indian goods in China are severe. A crucial point here is that if India’s export basket is as small as assumed in its trade with China, why has expansion not occurred, especially when India exports these commodities and a much broader range to the U.S. and maintains a positive trade balance? The answer lies in analysing China’s tariff and non-tariff barriers against goods and services from India. China has imposed tariffs and non-tariff barriers on Indian goods and services, restricting market access for Indian exports, particularly in sectors like agriculture, pharmaceuticals, and IT services, where India has a comparative advantage.

 

China’s tariff barriers on key Indian exports

 

Tariff barriers are those barriers to trade that involve taxes or duties imposed on imported goods, thereby increasing their costs and reducing competitiveness. The following sections outline the key tariffs China imposes on Indian goods.

 

1. Agricultural products: On Indian agricultural goods, such as sugar and rice, there are high Chinese tariffs. Tariffs on non-basmati rice and other agricultural commodities can range from 10% to 65%, reducing the competitiveness of Indian exports compared to domestic and other foreign suppliers.^[5] Chinese tariffs on Indian sugar exports stand at around 50%, with additional safeguard duties applied inconsistently. This hampers India’s capacity to exploit China’s sugar demand, even though India is the world’s second-largest producer^[6].
2. Pharmaceuticals: India’s strengths in generic drugs are blocked by China’s tariffs, which average around 4-10% on pharmaceutical products. Active pharmaceutical ingredients encounter further barriers, diminishing cost advantages.^[7] What should be highlighted for better context is that India exports pharmaceutical products to over 200 countries, including developed nations with strict regulatory standards. Currently, the U.S. is the largest destination for India’s pharmaceutical formulation products. Furthermore, India is a significant exporter of drugs (active pharmaceutical ingredients) and has 664 manufacturing plants approved by the U.S. Food and Drug Administration (USFDA)^[8]. However, due to trade restrictions in China, Indian pharmaceuticals cannot access the market on equal terms.
3. Textiles and Apparel: Indian textiles face tariffs ranging from 5% to 25%, with higher rates applied to value-added products such as garments. This hampers India’s ability to compete with countries like Vietnam or Bangladesh, which benefit from zero or lower tariffs in trade with China.^[9]
4. Pesticides: Starting from 7 May 2025, the Chinese government will impose anti-dumping duties on cypermethrin, a key pesticide ingredient from India. China’s Ministry of Commerce announced that the policy will be in effect for five years. The duties will range from 48.4% to 166.2%, depending on the Indian companies exporting^[10].

 

The following table shows 5 out of 202 items from India traded with China and the tariff rates that China applies to them.

 

Table 1:  Five representative products from India and China’s tariffs on them.

Reporter	Year	Partner	Product	MFN Rate	Applied Tariff
China	2022	India	Fish; tuna, fresh or chilled, (excluding fillets, livers, roes and other fish meat)	7	4.69999980926514
China	2022	India	Swordfish (Xiphias gladius)	7	3.5
China	2022	India	Ducks	5	5
China	2022	India	Fatty livers, fresh or chilled	20	20
China	2022	India	Cuts and offal, fresh or chilled	20	20

 

Source: World Integrated Trade Solution^[11]. ^[12]

 

While tariff barriers restrict trade, they are easier to spot and understand than non-tariff barriers, which are opaque and applied arbitrarily. China’s non-tariff barriers (NTBs) significantly restrict Indian exports, particularly in pharmaceuticals, agriculture, and marine products.

 

China’s non-tariff barriers against Indian products

 

NTBs, viewed in a regulatory context, impose higher costs on trade than tariffs, and a significant challenge with NTBs is quantifying the affected trade. Indian officials from the Ministry of Commerce have repeatedly highlighted the issues India faces due to import surges from China, which harm the Indian domestic industry. Indian exporters encounter problems such as payment deductions and financial losses associated with the banking system in China, without sufficient clarification regarding the reasons for these deductions^[13]. Indian trading companies have also accused Chinese steelmakers of backing out of orders for Indian iron ore, resulting in significant economic losses^[14].

 

Issues encompass food and public health safety, as well as cooperation in science and technology. For instance, China refrains from purchasing rice from India, citing quality concerns^[15], while importing from Pakistan and Myanmar without mentioning concerns regarding quality issues!

 

More than half of imports to China require import licences. Depending on the product, the initial licence is issued by various organisations, but the Chinese Ministry of Commerce grants the final licence. Consequently, it remains unclear which product or company will ultimately receive the licence, leaving Indian traders often at the mercy of these opaque processes in China^[16].

 

The Institute of Chinese Studies created a table of Chinese non-tariff barriers against certain Indian products in 2017. The following table provides a clearer picture of the NTBs that China has against Indian products.

 

Table 4: Bilateral level NTBs imposed by China

NTB Code	Description	Number	Percentage
P163	Product quality, safety, or performance requirement	1004	42.3
A11	Temporary geographic prohibitions for SPS reasons	980	41.3
A82	Testing requirement	281	11.8
E32	Prohibition for non-economic reasons	35	1.5
A86	Quarantine requirement	16	0.7
A851	Origin of materials and parts	12	0.5
C3	Requirement to pass through specified port of customs	8	0.3
B83	Certification requirement	6	0.3
B84	Inspection requirement	6	0.3
A84	Inspection requirement	4	0.2
E1	Non-automatic import-licensing procedures other than authorizations for SPS or TBT reasons	3	0.1
E111	Licensing procedure with no specific ex ante criteria	3	0.1
F61	Custom-inspection, processing and servicing fees	3	0.1
P162	Product quality, safety, or performance requirement before export	3	0.1
A14	Special authorization requirement for SPS reasons	2	0.1
A51	Cold/heat treatment	2	0.1
A69	Other requirements on production or post-production processes	2	0.1
A83	Certification requirement	2	0.1
B31	Labelling requirements	2	0.1
F71	Consumption taxes	1	0
	Total	2375	100

 

Source: Malini Tantri, C. Nalin Kumar and Varadurga Bhat, 2021^[17].

 

Specific examples of China’s NTBs against Indian products

 

1. Sanitary and phytosanitary measures and testing requirements: India’s agricultural exports, such as grapes, mangoes, chillies, tea, and basmati rice, face stringent SPS measures in China. These include complex testing and certification by Chinese customs, which increases costs and causes delays. High compliance costs deter small and medium enterprises from exporting to China, further reducing Indian exports. As far back as 2012, India had raised concerns that China did not provide sufficient scientific evidence for restricting exports of its agricultural commodities. Despite India having consistently raised the issue of market access for Indian agricultural products with China, there has been no inclination from China to resolve the matter, and the problem persists even in 2025^[18].
2. Pharmaceutical export rejections: Indian pharmaceutical exports to China often encounter rejections due to “non-compliance” with Chinese testing standards, which are, to say the least, unclear. Furthermore, no redress mechanism is in place, resulting in significant financial losses. In 2019, India requested that China open its pharmaceutical market, especially for affordable and high-quality generic drugs from Indian pharmaceutical companies. India also urged China to prioritise the resolution of various regulatory hurdles faced by Indian companies, including addressing the lengthy delays in product approval timelines, the lack of clarity in registration guidelines, drug procurement by local governments in China, suomotu approvals for those Indian pharma companies that have received approvals from stringent regulatory authorities like USFDA, EDQM, Japan, and ‘risk based’ batch testing with self-certification^[19]. However, the situation in 2025 remains the same.
3. Technical standards and quality control orders: China imposes stringent technical standards on Indian exports, particularly for food, meat, fish, dairy, and industrial products, where India holds a comparative advantage. These Chinese non-tariff barriers often diverge from international norms^[20]. This highlights China’s strategy of denying exports while attempting to leverage the Indian market, all the while subtly refusing similar access to Indian products in China.
4. Market access restrictions: Indian goods, particularly in the sectors of agriculture and pharmaceuticals, face barriers to entering the Chinese market due to opaque regulatory processes. Even 13 years ago, in 2012, China suspended the import of rapeseed meal from India because of alleged contamination with malachite green dye in shipments. Indian bovine meat and meat products were similarly refused entry into the Chinese market due to claims of foot and mouth disease. Access to certain vegetables and fruits from India was also restricted^[21]. The situation remains the same even today.

 

China’s barriers to trade and its linkages with its geopolitical ambitions

 

In 2025, in the face of economic wrath from the U.S. in the form of tariffs, countries across the globe, including India and China, braced and continue to brace for economic catastrophes. While China has consistently used tariffs and non-tariff barriers against Indian products and denied equal market access, in 2025, when China was hit with the highest amount of tariffs by the U.S., it reached out to India, stating that India and China should stand together against the “abuse of tariffs” by the U.S.^[22].

Yu Jing, the spokesperson for the Embassy of the People’s Republic of China in New Delhi, posted on X, “China-India economic and trade relationship is based on complementarity and mutual benefit.”^[23] This marks the first time that China has made such a statement. What the PRC has conveniently forgotten is that it has imposed tariffs and non-tariff barriers against India for decades, without any redress, even when India has made specific requests for resolution.

 

China aspires to be the leading actor in the international system, displacing the U.S. However, its economic growth must continue for it to attempt to achieve some level of parity with the U.S. India is not regarded as valuable in this competition unless the Indian market needs to be leveraged by China to drive its own economic growth at India’s expense. Even within the framework of regional groupings such as the Shanghai Cooperation Organisation or BRICS Plus, China frequently highlights what it perceives as malicious trade practices of the U.S., often overlooking that it has engaged in the same practices, and even worse, against Indian products.

 

While India also suffers from the adverse effects of the weaponisation of tariffs by the U.S., the fact remains that India has maintained positive trade balances with the U.S. until now and has not experienced the same level of denial of equal market access as has been the case with China. As stated in previous sections, India has raised these issues with China, requesting equal market access. However, China has consistently chosen to turn a blind eye. In the current historical context, as the U.S. renegotiates its role as the provider of a stable international order, serious strains will be felt across the globe. While it is crucial to identify and highlight the malicious use of tariffs by the U.S., it is equally important to recognise that China has long engaged in such practices. Its reliance on NTBs, in particular, is noteworthy, as these barriers are difficult to counter. NTBs are often complex, less transparent, and rooted in national regulations and policies. Tariffs are explicit taxes on imports, whereas NTBs are subtle and challenging to identify, measure, and contest.

 

India has employed the mechanism of the World Trade Organisation to counter China’s dumping of products within its borders. Recently, India has also instituted anti-dumping duties on certain Chinese goods. China has called it “unfortunate.”^[24], even though India has clearly stated why it is a move to protect its domestic industry. While China, under the guise of protecting its domestic industry, has been imposing tariffs and non-tariff barriers on Indian products for years, India’s similar actions do not sit well with China. This hypocrisy is further highlighted by China’s imposition of a 166% duty on cypermethrin from India, which the PRC claimed was a measure to safeguard its own industry. Conversely, when India takes the same steps, it faces criticism from China.

 

While trade could have been a great tool to keep political and military conflicts at bay, the fact is that trade itself has emerged as a realm for further conflicts, duplicity, and a selfish, one-sided pursuit of interests. China’s utilisation of trade to become one of the leading actors in the international system has been well documented. However, what remains to be demonstrated is how it has used trade for its own benefit, often at the expense of its trading partners, thereby ensuring that true globalisation can never fully take place. India needs to be cognisant of the fact that while the U.S. is resorting to weaponising tariffs, China has long abused the principles of fair trade.

 

Author Brief Bio: Prof. (Dr.) Sriparna Pathak is a Professor of China Studies at the Jindal School of International Affairs and a Senior Fellow at the Jindal India Institute of O.P. Jindal Global University. She can be reached at sriparnapathak@gmail.com.

 

 

References:

[1] Jain, Smriti. “Explained in Charts: India to Become 4th Largest World Economy Soon. What’s the Road Ahead to No.3 Spot?” The Times of India, 27 May 2025, timesofindia.indiatimes.com/business/india-business/explained-in-charts-india-to-become-4th-largest-world-economy-soon-whats-the-road-ahead-to-no-3-spot/articleshow/121418460.cms.

 

[2] India: Fastest-Growing Major Economy.

www.pib.gov.in/PressReleasePage.aspx?PRID=2123826#:~:text=India%20is%20poised%20to%20lead,growth%20continues%20to%20gain%20prominence.

 

[3]  Embassy of India, Beijing. www.eoibeijing.gov.in/eoibejing_pages/MjQ%2C.

 

[4] Embassy of India, Beijing. www.eoibeijing.gov.in/eoibejing_pages/MjQ%2C.

 

[5] Barik, Soumyarendra, and Ravi Dutta Mishra. “Govt Looks at Options as Business Mounts Pressure for China Dealings Again.” The Indian Express, 23 Oct. 2024, indianexpress.com/article/india/govt-looks-at-options-as-business-mounts-pressure-for-china-dealings-again-9633750.

 

[6] https://apps.fas.usda.gov/newgainapi/api/Report/DownloadReportByFileName?fileName=Sugar%20Annual_Guangzhou%20ATO_China%20-%20People%27s%20Republic%20of_CH2025-0086.pdf

 

[7] Singh, Sandeep, and Anil Sasi. “US Tariffs Looming, India Looks at Easing Non-trade Barriers, Relaxing Chinese FDI.” The Indian Express, 24 Mar. 2025, indianexpress.com/article/business/economy/us-tariffs-looming-india-looks-at-easing-non-trade-barriers-relaxing-chinese-fdi-9902293.

 

[8] Chaudhuri, Sudip. “India’s Import Dependence on China in Pharmaceuticals: Status, Issues and Policy Options.” RIS Discussion Paper Series, 268, July 2021.

 

[9] Suneja, Yogima Seth Sharma and Kirtika. “India Sees Export Opportunity in 10 Products Amid US-China Tariff War.” The Economic Times, 15 Apr. 2025, economictimes.indiatimes.com/news/economy/foreign-trade/india-sees-export-opportunity-in-10-products-amid-us-china-tariff-war/articleshow/120289496.cms?from=mdr.

[10] https://www.idnfinancials.com/news/54376/china-hits-back-at-india-through-166-anti-dumping-duty-on-pesticide#:~:text=BEIJING%20%E2%80%93%20The%20Chinese%20government%20has,pesticide%20ingredient%20originating%20from%20India.

 

[11] China Tariffs on India | WITS Data. wits.worldbank.org/tariff/trains/en/country/CHN/partner/IND/product/all#.

 

[12] Please see the complete list at https://wits.worldbank.org/tariff/trains/en/country/CHN/partner/IND/product/all#

 

[13] Ace Global Private Limited. “Trade Facilitation Problems of Indian Exporters.” Final Report, by Govt. of India, Ministry of Commerce & Industry et al., June 2005, wtocentre.iift.ac.in/UNCTAD/UNCTAD%20TFAC%20%20Final%20Report%2013%20June%202005.pdf.

 

[14] Peter Wonacott “Downturn Heightens China-India Tension on Trade”, Wall Street Journal, 20 march 2009,  https://www.wsj.com/articles/SB123749113639187441

 

[15] Gupta, Yashi. “Explained: Why Is China Importing Rice From India for the First Time in Decades?” CNBCTV18, 17 Dec. 2020, www.cnbctv18.com/world/explained-why-is-china-importing-rice-from-india-for-the-first-time-in-decades-7757601.htm.

 

[16] Tantri, Malini L., et al. “Trade Irritants and Non-Tariff Measures Between China and India.” Institute of Chinese Studies, 2021, www.icsin.org/uploads/2021/06/07/9e51ae3fb07b4f54a7d5900d21ec9319.pdf.

 

[17] Tantri, Malini L., et al. “Trade Irritants and Non-Tariff Measures Between China and India.” Institute of Chinese Studies, 2021, www.icsin.org/uploads/2021/06/07/9e51ae3fb07b4f54a7d5900d21ec9319.pdf.

 

[18] Pti. “India Raises Concerns Over Agricultural Exports to China.” The Economic Times, 21 Mar. 2012, www.economictimes.indiatimes.com/news/economy/agriculture/india-raises-concerns-over-agricultural-exports-to-china/articleshow/12355807.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst.

[19] Meeting of Drug Regulators of India and China. www.pib.gov.in/PressReleasePage.aspx?PRID=1578521#:~:text=Both%20sides%20also%20decided%20to%20work%20towards,CFDA%20to%20enable%20higher%20exports%20to%20China.

 

[20] Ananth, Venkat. “Seven Flashpoints Between India and China.” Mint, 24 Sept. 2014, www.livemint.com/Politics/PsdTIEaclnM6EkEMUrMGDP/Seven-flashpoints-between-India-and-China.html.

 

[21] Trade Between India and China. www.pib.gov.in/newsite/PrintRelease.aspx?relid=108614#:~:text=China%20has%20suspended%20import%20of%20rapeseed%20meal,of%20alleged%20’Foot%2Dand%2DMouth%20Disease’%20(FMD)%20in%20India.

 

[22] Anirban Bhaumik, and Anirban Bhaumik. “China Calls on India to Jointly Oppose US ‘abuse of Tariffs.’” Deccan Herald, 8 Apr. 2025, www.deccanherald.com/india/china-reaches-out-to-india-after-us-tariffs-abuse-proposes-to-stand-together-3484834.

 

[23] Sharan, Sunil. “China Is on Our Side. Really?” The Statesman, 12 Apr. 2025, www.thestatesman.com/opinion/china-is-on-our-side-really-1503419665.html.

 

[24] TOI Business Desk. “India Imposes Anti-dumping Duties on Five Chinese Products to Protect Local Industries.” The Times of India, 23 Mar. 2025, timesofindia.indiatimes.com/india/india-imposes-anti-dumping-duties-on-five-chinese-products-to-protect-local-industries/articleshow/119378432.cms#:~:text=India%20has%20imposed%20anti%2Ddumping%20duties%20on%20five,protect%20local%20industries%20from%20unfairly%20low%2Dpriced%20imports.&text=As%20both%20India%20and%20China%20are%20WTO,which%20reached%20USD%2085%20billion%20in%202023%2D24.

Introduction

 

India’s trade policy has undergone significant changes in the past five years, raising the crucial question of whether its tariff regime is driven by protectionist instincts or a pragmatic economic strategy. As a senior industry professional with three decades of experience, and responsible for strategic decisions in a USD 15 billion manufacturing company, I have observed how tariff policies can shape competitive landscapes.

 

India’s policymakers are striving to balance the protection of domestic industries with the benefits of trade liberalisation. On one hand, the government has raised import duties on various goods and invoked trade defence measures (such as anti-dumping investigations) to safeguard local producers. On the other hand, it has pursued export targets, established new trade agreements, and offered production incentives to integrate with global markets. This brief report examines India’s tariff strategy through a macroeconomic lens to assess whether recent policies represent protectionism or a pragmatic recalibration. Key indicators—from comparative advantage metrics to export composition, tariff structures, and industry challenges—are evaluated. Lastly, strategic recommendations are provided for businesses to establish competitive advantage amid India’s evolving tariff and non-tariff trade policies.

 

India’s Comparative Advantage and Trade Specialisation

 

India’s trade profile reveals areas of both strong comparative advantage and unrealised potential. Comparative advantage indicators show that India excels in certain skilled industries and services. For example, India has world-leading competitiveness in IT and business process services, capturing a major share of global IT exports. In manufacturing, India performs well in pharmaceuticals and transport vehicles, sectors that leverage the country’s skilled labour and large-scale industry. These areas demonstrate India’s revealed comparative advantage (RCA) indices, which are high and reflect global export shares exceeding its world export share. In contrast, labour-intensive manufactures, such as textiles and apparel, have lagged despite India’s inherent advantages in these sectors. For instance, India’s share of world exports in apparel has stalled, even though low-cost labour and traditional know-how suggest it could be higher. This divergence indicates that while India has specialised successfully in certain medium- and high-tech goods, it has not fully capitalised on its potential in all areas.

 

Trade specialisation metrics present a mixed picture. India’s share of global merchandise exports remains modest at approximately 1.8% as of 2023, having only slightly increased from 1.7% in 2014. (By comparison, China accounts for over 14% of world exports.) India’s ranking among merchandise exporters improved from 19th to 17th globally during this period. The country’s export basket is fairly diversified, with a moderate concentration in its top products. India’s export complexity (a measure of the range and sophistication of exports) has improved over time, reflecting a shift towards higher-value goods. However, the overall scale of India’s exports remains low relative to the economy’s size – merchandise exports amount to only around 13% of GDP (2021-22), down from roughly 17% a decade earlier. This indicates that India’s trade specialisation is still limited, and the economy is less export-driven than its East Asian counterparts. In summary, India demonstrates clear comparative advantages in specific sectors (pharma, refined petroleum, IT services, etc.) but has yet to fully translate these into a dominant global trade position. Addressing internal bottlenecks – such as infrastructure gaps, technology adoption, and skills – could enhance India’s trade specialisation in both traditional and emerging industries.

 

India’s Tariff Strategy: Protectionist or Pragmatic?

 

India’s recent tariff actions have sparked debate about whether they represent a protectionist shift or a pragmatic policy response to global and domestic challenges. Factually, India did increase many import tariffs in the late 2010s, reversing a lengthy period of post-1991 liberalisation. The simple average of India’s tariffs rose by approximately 25% over the last decade, reaching 11.1% in 2020-21. This increase marked a departure from the steady tariff reductions of prior decades and has been described as a “creeping rise in protectionist tariffs.” In budgets from 2018 onwards, the government raised customs duties on products like electronics, toys, furniture, auto parts, and textiles, explicitly encouraging domestic manufacturing under the “Make in India” and Atmanirbhar Bharat (self-reliant India) initiatives. Such measures—alongside frequent anti-dumping actions (India initiated 233 anti-dumping investigations in 2015–2019 alone)—have led many observers to label India’s trade approach increasingly protectionist. Even the World Bank noted in 2024 that India’s import tariffs on key inputs (from China and others) raise costs and undermine its participation in global value chains.

 

However, the government defends its approach as pragmatic and strategic rather than protectionist. Officials argue that selective tariff hikes are intended to nurture nascent industries, correct trade imbalances, and reduce import dependence in sensitive sectors, not to isolate India from trade. In practice, India’s trade policy in recent years appears to blend protectionism with pragmatism. On one side, tariffs on items such as electronics, toys, and furniture have been raised to bolster domestic producers, and import bans or restrictive origin rules have been imposed (for instance, stricter rules of origin were implemented to prevent Chinese goods from routing via FTA partners). These measures indeed protect local industry but risk inviting retaliation or higher costs.

 

On the other hand, India has offered tariff concessions on inputs (e.g. reducing duties on raw materials for textiles and steel in budgets). It has utilised production-linked incentive (PLI) schemes instead of blanket tariffs to encourage domestic manufacturing in electronics, pharma, and solar panels. Such calibrated steps can be considered pragmatic industrial policy consistent with WTO rules (since PLI subsidies are targeted) rather than blunt protectionism.

 

Composition of India’s Exports: Landscape of Manufactured Goods

 

The landscape of India’s exports has evolved significantly in recent years, with manufactured goods now dominating the export basket. In the fiscal year 2021–22, India’s merchandise exports surged to a record $418 billion, rebounding strongly after the pandemic. Manufactured products (industrial goods) constitute the bulk of these exports, alongside notable contributions from agriculture and minerals. Within manufacturing, a few categories stand out as pillars of India’s export profile:

 

Engineering goods, petroleum products, gems and jewellery, chemicals, and pharmaceuticals consistently rank as the top earners. Engineering goods—a broad category that includes industrial machinery, automobiles and auto parts, iron and steel products, among others—constitute the largest segment, reflecting India’s strength in heavy industries and automobile manufacturing. In 2021-22, India’s engineering exports surpassed $100 billion for the first time, accounting for approximately one-quarter of total merchandise exports.

 

Due to India’s large oil refining capacity, petroleum products are the second principal component. India imports crude oil but exports substantial volumes of refined fuels (diesel, petrol) and petrochemicals. Elevated global oil prices and increased refining output caused petroleum product exports to surge over 140% in 2021-22, reaching an estimated ~$60 billion. Gems and jewellery, particularly cut and polished diamonds and gold jewellery, represent another traditional export forte (around $40 billion annually), leveraging India’s skilled artisan workforce in the diamond polishing hubs. Chemicals and related products (including speciality chemicals, plastics, etc.) and pharmaceuticals have expanded rapidly, contributing approximately $50+ billion. Notably, India is a top global supplier of generic medicines (pharma exports ~$24–25 billion) and an emerging player in organic chemicals.

 

Meanwhile, textiles and apparel – once a leading export sector – have shown modest performance (estimated at over $30 billion), yielding ground to countries like Bangladesh and Vietnam in recent years. India’s agricultural exports (rice, sugar, spices, etc.) and software services exports are also significant, but the focus here is on merchandise. The chart in Figure 1 illustrates the scale of key merchandise export categories (values for FY2021- 22), highlighting the dominance of engineering goods and refined petroleum among exported products.

 

Figure 1: India’s top merchandise export categories by value (FY2021- 22).

Engineering goods and other manufactured products constitute the majority of India’s exports. Petroleum refinery products are a significant export because of India’s refining industry. Traditional sectors such as gems and jewellery, alongside textiles, continue to hold importance, while chemicals and pharmaceuticals are rapidly growing segments.

 

This export composition underscores that manufactured goods drive India’s trade, contrary to the outdated image of India as primarily an exporter of primary goods or services. Over 75% of India’s merchandise exports are in manufacturing categories (including refined petroleum). This diversification into manufacturing has been a gradual structural change: policy reforms since 1991 enabled industries such as autos, pharma, and steel to become internationally competitive. By the mid-2010s, India had established a foothold in medium- and high-tech exports; for instance, it is among the top five exporters of generic pharmaceuticals, and its auto industry exports millions of vehicles and components annually. India’s performance in these sectors demonstrates improved technological depth, though challenges remain (e.g., low R&D spending at 0.9% of GDP hampers the move up the value chain).

 

Another encouraging sign is the broadening of India’s export destinations. Indian goods are now exported to over 115 countries, covering 46% of all world economies. Traditional markets like the U.S. and EU still dominate (the EU alone accounts for ~12% of India’s goods trade), but India has expanded exports to emerging markets in Asia, Africa, and Latin America. This diversification helps reduce dependence on a few markets and indicates a maturing export sector. Still, India’s export intensity (exports/GDP) lags behind its peers – a concern for long-term growth.

 

The government’s $400 billion export target (achieved in 2021-22) was driven by rises in global commodity prices and a post-COVID demand recovery; however, maintaining high growth will require improvements in competitiveness. Notably, India’s share of world exports in certain labour-intensive goods (such as apparel and leather) has stagnated or declined, indicating that domestic bottlenecks (infrastructure, logistics, compliance costs) undermine those sectors’ advantages. Conversely, India’s success in skill-intensive goods (pharma, engineering) demonstrates what can be accomplished with the right mix of entrepreneurship and supportive policy.

 

In summary, India’s export landscape is characterised by a diverse, manufacturing-led basket, with several star sectors compensating for weaker areas. This composition also reflects India’s natural endowments and policy choices – abundant labour and jewellery craftsmanship support the gems and textiles industries; large refineries and pharmaceutical firms have developed from earlier policy initiatives. The key for India will be to deepen its comparative advantages (e.g., ascending the value chain in electronics, machinery, chemicals) while revitalising its competitiveness in job-rich sectors like apparel. The tariff strategy will play a crucial role here: high tariffs on inputs or capital goods could undermine export competitiveness, whereas supportive trade policies could assist.

Indian manufacturers integrate into global supply chains and maintain their export momentum.

 

Challenges Encountered by Indian Industries under Current Tariff Policies

 

India’s present combination of tariff and trade policies presents several challenges for domestic industries, impacting their cost structures, market access, and integration into supply chains.

 

Higher Input Costs and Inverted Duty Structures: A recurrent complaint of Indian manufacturers is that import duties on raw materials and components often raise their input costs, making final products less competitive. The existence of inverted duty structures (IDS) – where import tax on inputs exceeds that on finished goods – is particularly harmful. As noted, about one-third of products in sectors like electronics, chemicals, textiles, and metals in India face IDS. This means a textile producer might pay a 10% duty on imported fabric, but the finished garment faces, say, a 5% duty when imported – a recipe for undermining domestic manufacturing. Such tariff anomalies “leak” cost competitiveness, encouraging imports of finished goods and discouraging local value addition. While the government has started reviewing and correcting these (a comprehensive tariff review is underway), many industries still struggle with high duties on essential inputs like electronic components, speciality chemicals, or machine tools. Until resolved, this challenge limits Indian firms’ ability to scale up and become export-competitive.

 

Export Competitiveness and Global Value Chains (GVCs):

 

The integration of Indian industry into global value chains remains limited, mainly due to tariff policy. Higher tariffs not only increase domestic costs but can also provoke retaliatory barriers abroad. Moreover, a protectionist stance may result in India being excluded from trade arrangements that facilitate GVC integration. For instance, rising tariffs since 2014 have been cited as a factor that could exclude India from emerging supply chains (such as the Quad’s semiconductor initiative) unless reversed.

 

Many multinational firms still regard India primarily as a local market rather than an export base, partly because India’s tariff and regulatory regime makes importing inputs and exporting outputs less seamless than, for instance, Vietnam. A Deloitte survey of global business leaders indicated that countries like Vietnam and Indonesia score higher than India as preferred investment destinations, specifically due to more open trade regimes and easier business climates. Thus, Indian industries face the challenge that if trade policies remain relatively protectionist and cumbersome, they could miss out on foreign investment and partnership opportunities that GVC participation offers. This represents a strategic concern – modern manufacturing often entails components crossing borders multiple times, and tariffs can act as a tax on this process.

 

Policy Uncertainty and Frequent Changes: Industries value a stable policy environment for long-term planning.

 

In recent years, India’s trade policy has undergone frequent tweaks, including sudden tariff hikes in certain budgets, abrupt import bans (for example, on certain electronics or auto parts, citing quality concerns), and changes in export incentive schemes. The government’s amendment of the Customs Act in 2021 to enable bans on any goods “to prevent injury to the economy” is one such move that, while WTO-consistent in principle, adds regulatory uncertainty.

 

Businesses fear that unpredictable policies can heighten the risks of investing in export-oriented capacity. What if critical inputs are subjected to high duties or an export is banned to control inflation? A case in point was India’s ban on wheat exports in 2022 to ensure food security. While this decision benefited domestic consumers, traders and farmers were caught off guard. Similarly, incremental alterations in import tariffs, often announced with little notice, complicate efforts for industries to establish stable supply chains. The challenge for firms is to remain agile and compliant amid a multitude of changes to tariff lines, new quality control orders (non-tariff barriers), and evolving export incentive regimes, such as the recent shift from the MEIS to the RoDTEP scheme. Such uncertainty can deter investment, as companies may prefer more predictable jurisdictions for establishing manufacturing intended for export.

 

In summary, Indian industries today are in a transitional phase: they benefit from a large protected home market due to tariffs. However, many are striving to become world-class exporters, which requires reducing costs and integrating with global supply chains. The challenges highlighted—costly inputs (IDS), limited FTA benefits, policy uncertainty, and competitive disadvantages abroad—suggest that India’s tariff strategy, while providing short-term protection, might hinder firms in the long run if not calibrated correctly.

 

Industries such as chemicals, electronics, and textiles have explicitly pointed out that tariff protection alone cannot ensure global success and that complementary measures (infrastructure, skill development, innovation) are required. Encouragingly, the government recognises some of these pain points: the ongoing tariff review to rectify inverted duties and the pursuit of new FTAs are positive steps. However, until these measures materialise, Indian firms must navigate a challenging environment where domestic policy shields them at home but potentially handicaps them abroad.

 

Strategic Recommendations for Gaining Competitive Advantage

 

In light of the challenges mentioned above and the current tariff regime, Indian businesses—particularly large manufacturers and those engaged in global trade—should adopt strategies to create a competitive advantage while alleviating tariff-related disadvantages. Below are strategic recommendations for companies to prosper under India’s tariff and non-tariff trade policies:

 

• Focus on Operational Efficiency and Product Differentiation: When tariffs raise input costs or shelter a firm from competition, there exists a risk of complacency. Savvy businesses should utilise the protected period to enhance efficiency, quality, and R&D to better withstand competition in the long term. This involves investing in modern production technology, workforce training, and lean manufacturing to counteract cost disadvantages. By boosting productivity, Indian firms can narrow the cost gap that tariffs temporarily disguise. Furthermore, product differentiation is crucial – rather than competing solely on cost (where Chinese or other competitors might undercut), Indian companies can innovate and specialise in higher-value niches. For instance, in the textiles sector, instead of mass-producing basic apparel (where Bangladesh has an advantage), Indian firms could concentrate on technical textiles or fashion segments where they can command a premium. In chemicals, businesses are shifting towards specialty chemicals and formulations customised for client requirements, which face less direct competition and often inspire loyalty. These strategies enhance businesses’ resilience against both domestic import competition (if tariffs are lowered) and aggressive pricing abroad. Essentially, competitive advantage must stem from inherent strengths – quality, innovation, branding – rather than reliance on tariffs. Firms that accomplish this will discover that even if tariffs are reduced (as OECD and others recommend for India), they can maintain their position in the market.
• Advocacy for Tariff Rationalisation and Trade Facilitation: Industry leaders could actively engage with the government (through industry associations such as CII, FICCI, etc.) to advocate for a simpler, more rational tariff structure that benefits the broader economy. The ongoing anomalies, such as inverted duties, harm not only individual companies but entire value chains. By providing data and case studies to policymakers, businesses can push for the timely removal of such anomalies. Advocacy can also extend to urging the government to fast-track critical FTAs; for instance, an India-EU FTA would greatly assist sectors such as automobiles, textiles, and pharmaceuticals by reducing tariffs in that vast market. Additionally, firms should lobby for improved trade facilitation, including smoother customs processes, digital clearance, and infrastructure development at ports. Reducing non-tariff barriers and transaction costs can often be as significant as cutting tariffs. Some issues highlighted include alignment with international standards (to reduce rejections abroad) and increased transparency in trade policy changes. A collaborative approach, where industry voices its needs and works with policymakers, can create a win-win: policies that both protect and empower domestic industry in a sustainable way.
• Capitalising on Government Support Programmes: While tariffs are one tool, the government has introduced numerous programmes to boost industry that firms could capitalise on. The Production-Linked Incentive (PLI) schemes in sectors like electronics, autos, pharma, and chemicals effectively provide financial rewards for scaling up domestic production and exports. By participating in PLI, companies can offset some disadvantages (such as higher input costs) through subsidy gains, which enhances overall competitiveness. Similarly, programmes for MSMEs, export promotion capital goods (EPCG duty exemptions), and refund of duties & taxes on exports (RoDTEP) help reduce the tax burden on exporters. Savvy firms will ensure they claim all eligible incentives and remain compliant with requirements to maximise these benefits. Over time, such support can help firms achieve global scale and competitiveness, after which they can thrive without protection. The recent success of mobile phone manufacturing in India – which went from near-zero to over $5 billion in exports in a few years, aided by tariffs on imports and PLI incentives – is a model that could be replicated in other sectors. Businesses should align their strategies with these national initiatives (for example, the push for green hydrogen or electric vehicle components) where they identify long-term potential, as they often come with tariff adjustments (low duties on inputs, high on finished imports) that favour early movers.

 

Conclusion

 

India’s tariff strategy over the past five years reflects a delicate balancing act. The nation has employed tariffs and trade measures to protect domestic industries and promote self-reliance, a stance that leans towards protectionism in the short term. Simultaneously, India’s long-term economic aspirations – to increase manufacturing’s share of GDP, integrate into global value chains, and become a $5 trillion economy in the near future – create a pragmatic need for openness and competitiveness. As this report has analysed, India’s comparative advantages are genuine but require nurturing through efficient policy, not permanent protection. The composition of exports demonstrates that India can succeed in diverse manufacturing sectors; however, challenges such as inverted duties and limited free trade access hinder industries from reaching their full potential.

 

India’s tariff strategy is not merely a binary of protectionism versus pragmatism; it rather exists on a spectrum where policy must continuously calibrate between the two. The next few years will likely witness further tariff rationalisation, more trade deals, and efforts to align with global standards – steps towards pragmatism that are already underway. Indian industry, for its part, should be prepared to capitalise on a more open yet competitive environment. With the right strategic responses, businesses can transform India’s tariff and trade policies into a foundation for securing competitive advantage, both domestically and on the global stage. This balanced approach – protecting where necessary and liberalising where possible – could effectively decode a tariff strategy that propels India towards high-quality growth and greater prominence in global trade, achieving the best of both protectionist caution and pragmatic engagement.

 

Author Brief Bio: Sundeep Kohli is SVP Finance at Indo Rama Ventures Ltd based in Thailand working closely with the founding family. Prior to that he worked with Reckitt Benckiser for almost 15 years in global finance roles across Japan, UK, China, Singapore amongst others and started his career with ITC Ltd. He is a Chartered Accountant by profession and an executive MBA from ISB, Hyderabad and has also done advanced business strategy courses from Harvard Business School.

Introduction: Trade Policy in the Context of the Vision for Viksit Bharat

 

India has set itself an ambitious target. The country hopes to transform into a developed economy with commensurate per capita income and quality of life by 2047. This vision of Viksit Bharat envisages a robust economy that is globally competitive and integrated into global value chains, generating economic opportunities for Indian workers and businesses to assist in fulfilling this transformation into a developed economy. Integral to this vision is a diversified and technologically advanced industrial sector that serves as an engine of growth and employment creation and a means to meet India’s security needs, reinforcing India’s emergence as a global power.

 

Achieving this goal would require sustained economic growth of at least 8% for well over a decade. However, such growth would also need to produce relatively well-paying jobs capable of absorbing the millions of working-age Indians. With around 990 million people in its working-age population, India currently boasts the world’s largest cohort of potential workers. This presents both a challenge and an opportunity. If this population is productively employed, it will create a virtuous cycle of production leading to income and demand that will aid India in achieving its target of Viksit Bharat. Generating such productive employment would necessitate a rapid expansion of the manufacturing and services sectors, allowing India to leverage demand drivers in both the domestic and global economies. Consequently, India’s trade and investment strategies are central to its path towards Viksit Bharat.

 

However, this growth path is complicated by the increasingly rapid adoption of automation and robotics in manufacturing, along with AI-led solutions in services. East Asian economies, including China, relied on relatively low labour costs, supported by decent infrastructure and political stability, to attract the labour-intensive segments of the manufacturing value chain to their countries during their industrial transformation from the 1980s to the early 2000s. Indian workers will now have to compete not only with workers from other countries in terms of productivity and cost, but also with robots and AI-led automation in skilled jobs.

 

Autor (2019) presents evidence of a highly polarised labour market due to such technological shocks, with high returns for the highly skilled and increasingly lower returns and opportunities for less skilled workers. This indicates a shrinking number of ‘middle-class’ jobs precisely when India would want millions of its low-wage workers to transition towards better-paying middle-class jobs to drive its economic development. Giuntella et al. (2022) show that China is already facing a challenge from the adoption of robotics despite the scale and depth of its manufacturing sector. The increasing use of robots to enhance productivity and reduce costs diminishes economic opportunities for less-skilled workers in China. Acemoglu and Restrepo (2020) have shown that the growing use of robots reduces wages and employment, while Christiansen and Winkler (2019), using the trade flows between the US and Mexico as an example, provide evidence that increasing automation in developed country industries has reduced export opportunities for developing countries.

 

India would have to contend with this challenging technology transition and what many economists have termed the ‘China Shock’. China’s economy and manufacturing exports have grown at an unprecedented rate over the past three decades since the 1990s. As Table 1 below shows, China’s share of global manufacturing output increased 11.5 times from just 2.5% in 1990 to 28.7% in 2020. Currently, China accounts for close to one-third of global manufacturing output. No other single economy has dominated global manufacturing as China’s does today. China’s global share of manufacturing exports increased marginally from 1.5% to 1.8% between 1990 and 2000. However, it increased exponentially post-2000 after China became a member of the World Trade Organisation (WTO), reaching 14% by 2023.

 

Table 1: Share of Global Manufacturing Output

Countries/Region	1980	1990	2000	2010	2020
China	3.70%	2.50%	6.40%	18.20%	28.70%
Germany	9.00%	9.50%	6.70%	6.30%	5.40%
India	1.10%	1.20%	1.20%	2.70%	2.80%
Japan	11.00%	17.90%	18.60%	11.30%	7.50%
Korea, Republic of	0.50%	1.50%	2.50%	3.00%	3.00%
South-eastern Asia	1.30%	1.80%	2.70%	4.40%	4.90%

 

Source: Author’s calculation based on UNCTAD Data

 

China has not only come to dominate labour-intensive manufacturing exports (global share rising from 11% to 32% between 2000 and 2022), but also high-tech manufacturing exports (global share rising from just 4.5% to 25.6% between 2000 and 2022), as illustrated in Figure 1 below.

Figure 1: Global Share of Manufacturing Exports

High-tech Products

 

Labour Intensive Products

 

Source: Authors’ calculations based on World Integrated Trade Solutions (WITS) UN COMTRADE

 

The impact of this rapid and unprecedented rise has been further exacerbated by the fact that China has largely followed a mercantilist approach, encouraging exports and production while limiting consumption and imports. This gap between China’s exports and imports has been widening since the early 2000s (see figure 2 below). It is important to note that China’s share of global exports has not increased since 2016 and has remained stable at around 13% to 14%. This stagnation is partially attributable to tariff protections targeting Chinese imports implemented during the first Trump administration and protectionist measures in the EU and several other Asian countries. Nevertheless, China’s share of global manufacturing output has continued to grow, supported by state assistance, thereby increasing the risk of creating global overcapacity across various sectors^[1].

Source: Authors’ calculations-based World Development Indicators Database, World Bank

 

This unprecedented and unbalanced growth of China’s manufacturing sector and its domination of manufacturing exports have resulted in severe economic distress and job losses. Caliendo et al. (2019) and Autor et al. (2013) provide evidence of such significant job reductions due to this so-called ‘China Shock’. A Rhodium Group report from 2024 emphasises that developing countries have been particularly adversely affected by China’s mercantilist policies^[2].

 

The western world, particularly the United States, facilitated the entry of China, a non-democratic polity and a non-market economy, into the rules-based trading architecture of the global economy as represented by the WTO in 2000, with the hope that increasing integration with the global economy and rising incomes would lead to a democratic transition. It is clear that developments in China are actually moving in the opposite direction. As long as China’s unfair trade practices predominantly affected labour-intensive industries, with the adverse effects primarily felt by developing countries like India, the Western nations (and Japan) showed little concern (Banerjee et al. 2025a). In fact, many Western economists argued that Chinese subsidies helped manage inflation in their countries and that cheaper Chinese industrial parts and components enhanced the competitiveness of Western industries^[3].

 

However, as China began to challenge the dominance of Western economies in their core tech-intensive sectors, Western countries started to push back with more protectionist policies and state support for their own industries, often in contravention of the global rules they themselves championed a few decades ago. The tariff policies under the Trump administration and industrial policies such as the Inflation Reduction Act (IRA) and the CHIPS Act under the Biden administration are examples of such trade-distorting policies. The EU has been actively using environmental policies, such as the Carbon Border Adjustment Measures or CBAM, as a guise for protectionism. This Western reaction to the global imbalance caused by China is also shrinking the global opportunities available to large developing countries like India, precisely at a time when it needs to leverage such opportunities the most.

 

Another major concern arising from China’s domination of global manufacturing and exports is the vulnerabilities created for global supply chains due to over-reliance on China (or any single country). China has a 65% or greater share of imports in 407 products that are critically important, as they are associated with national security, healthcare, agriculture (fertilisers), renewable energy, or represent key intermediate inputs to industry^[4]. Such dependence can be easily weaponised by China, as demonstrated by the recent instance of China withholding the export of key capital machinery to slow down the shift of smartphone manufacturing to India^[5], or export controls of industrial magnets^[6] that have widespread industrial application including in the automobile industry, are perfect examples of such weaponisation of supply-chains.

 

China has also employed predatory pricing to eliminate any domestic capacity a country has, thereby increasing dependence on Chinese imports. In India, this was evident in the case of several chemicals that are Active Pharmaceutical Ingredients (APIs) critical to India’s pharmaceutical industry. Consequently, reducing dependence, particularly on unreliable trade partners whose geopolitical interests do not align with India, assumes significant importance.

 

Indian trade and investment policy must account for and address these fundamental challenges. India needs to establish trade deals that ensure assured access to key markets and eliminate both tariff and non-tariff barriers to its exports. Such assured market access would attract FDI and enable India to leverage global opportunities to drive its economic growth. However, making such deals requires reducing its own tariff barriers. India must negotiate optimal pathways for tariff liberalisation that allow it to provide strategic short- to medium-term protection to key industrial sectors, enabling them to grow while also safeguarding vulnerable sectors of its economy. Furthermore, India must ensure that it is perceived as a trusted partner and is not denied essential technologies.

 

Another priority would be to address unfair trade practices, particularly those originating from non-market economies. Simultaneously, India would need to advocate for flexibilities in global rules on industrial policy, allowing it to implement strategies that foster manufacturing growth and lift the majority of its population out of poverty and into the middle class. This would require persuading its main economic partners of the necessity for such flexibilities to pursue industrial policies that are intelligent, targeted, and effective, while not being entirely consistent with WTO rules on subsidies and state support for industries.

 

Another key policy objective would be to further enhance India’s competitive advantage in high-skilled services. Increasing digitalisation is amplifying the scale and scope of services trade. As Indian skilled workers bring an increasing level of competition to workers in developed countries across various occupations, there will be mounting pressure on the governments of those countries to protect their workers from such Indian competition. India will need to pre-empt this protectionism and ensure that the economic benefits of services trade, which could generate millions of well-paid jobs and help create an urban middle-class revolution several times the scale of that generated by IT-led development in the 2000s, are not hampered by such protectionist pressures (Banerjee et al. 2025b). As figure 3 below shows, India boasts the world’s largest cohort of college-educated individuals. Effectively leveraging this talent will be a critical aspect of India’s successful transformation into a developed economy.

Source: Global Tech Talent Guidebook 2025, CBRE Research

The following sections will discuss trade policy in relation to specific goals such as ensuring market access for Indian exports, attracting investment, and enhancing technology accessibility for Indian firms. We will also examine the role of bilateral agreements in fostering more resilient supply chains.

 

Trade Agreements and Market Access

 

Sustained growth of Indian manufacturing and services will require leveraging both domestic and global opportunities. Ensuring assured market access to the world’s major economies and growth regions is, therefore, a critical priority for Indian policymakers. India already has FTAs in place with Japan, Korea, ASEAN, the European Free Trade Area (EFTA), and the UK^[7]. It is currently pursuing FTAs with nearly all the other major industrial economies, including Australia^[8], the European Union (EU), and the USA^[9].

 

Having negotiated an FTA with the UAE. India is actively considering initiating agreements with the other Gulf Co-operation Council (GCC) member states, including Saudi Arabia^[10]. India is engaged in discussions with Russia and other member states of the Eurasian Economic Union (EaEU) for an FTA. Additionally, India is actively pursuing negotiations with major economies in Africa and Latin America for FTAs. The overarching objective is to establish FTAS with all G20 economies, excluding China, by 2030, as well as with the key emerging regions in Africa and Latin America.

 

According to WTO rules, India’s so-called MFN tariffs are available to all WTO member states, including non-market trade distorters like China. Therefore, India cannot discriminate and impose higher tariffs on non-market economies while applying lower tariffs on others. However, India can offer reduced tariffs without violating WTO rules to all countries or regions with which it has negotiated an FTA. India should aim to negotiate and finalise such FTAs with all major economies and trade partners by 2030. These FTA partners would account for a significant portion of global trade covered by FTAs^[11]. As Figures 4a and 4b below demonstrate, India’s FTA strategy would integrate the country with economies representing two-thi^rds of global GDP and more than two-thi^rds of global import demand. Consequently, India’s MFN tariffs would effectively apply only to China and other non-market economies with which India has not negotiated FTAs.

 

Figure 4a

Figure 5a

 

Source: Calculations based on World Integrated Trade Solution (WITS)

 

Strategically, this would provide India with the policy space to achieve two important objectives. First, increase such MFN tariffs as high as possible to counter non-market trade-distorting actions by non-market economies while ensuring they do not impact trade with other major market economies, which will be covered by much lower FTA tariffs. Second, use such high MFN tariffs strategically to reduce import dependence and supply-chain vulnerability, and ‘friendshore^[12]’ supplies from preferred FTA partners.

 

India’s FTA strategy aligns completely with the vision of Atmanirbhar Bharat. Thus far, India has largely succeeded in excluding certain sectors from market liberalisation or securing considerably long transition periods before opening its markets to key strategic sectors that are integral to its long-term industrial policy strategy^[13] (which we discuss subsequently). This will provide some breathing space before such sectors are exposed to foreign competition as tariffs decrease. India will need to leverage its domestic market size and enhance scale and competence in these crucial sectors that are set to dominate the global economy in the future.

 

Non-tariff barriers related to product standards, national security, consumer safety, health, and the environment are becoming greater obstacles to trade than tariffs. India must, therefore, ensure that these non-tariff barriers do not hinder its export opportunities. To achieve this, it needs to identify innovative provisions within its FTAs that focus on minimising the costs of complying with these standards and regulations for India’s exporters. India has been relatively less successful in this regard, making it a crucial area for further development and application as the country advances its FTA strategy.

 

Digitally delivered services are set to increasingly dominate the global value chain. India is the hub for Global Capability Centres (GCCs) mediating these emerging value chains. The growth of GCCs is central to fostering the next ‘middle-class’ revolution in India, creating millions of high-paying jobs in the country. India’s FTAs with key economies must include measures that pre-empt any protectionism in market access for Indian services exports. Many of these protectionist measures are currently absent, not discussed, or not applied, so there is still time for pre-emption. While India has secured some binding commitments for the cross-border digital delivery of services, this remains a work in progress, and there is a need for a more comprehensive strategy on this front^[14].

 

Ensuring gainful employment opportunities for India’s large working-age population will require leveraging global demand for workers, particularly in countries with ageing populations where such demand is likely to emerge. Services chapters in FTAs present opportunities for India to secure binding commitments on labour mobility for skilled service workers. Moreover, India must proactively seek stand-alone bilateral mobility agreements outside of FTAs that would enable Indian industrial workers and less-skilled service workers to find employment globally.

 

Investment and Technology

 

FTAs play a crucial role in attracting investments into the country. As mentioned earlier, FTAs provide predictability concerning tariffs through binding commitments on reduced tariffs and on regulatory aspects of trade. Businesses are therefore more inclined to invest due to the reduced risk of policy-induced shocks once an FTA is established. There is robust empirical evidence linking binding tariff liberalisation and regulatory predictability in FTAs to significant increases in FDI. The impact of FTAs on boosting FDI is particularly evident in agreements between developed and developing countries (Laget et al. 2021).

 

India’s FTA policy has been strategised based on the FTA-FDI linkage, which is why India has prioritised its FTAs with major industrialised economies. While the FTA-FDI linkage has traditionally been implicit, India has introduced innovations in FTA disciplines to create an explicit connection. It is important to note that the India-EFTA TEPA is the world’s first FTA explicitly establishing a discipline linking market access outcomes to FDI.

 

The agreement acknowledges that one fundamental trade-off in FTAs with advanced countries is opening up India’s vast and growing market in exchange for access to global value chains dominated by MNCs based in these advanced economies. FDI from these global MNCs and their affiliated suppliers in India will be crucial to India’s capacity to expand manufacturing and exports. It will also be central to technology and skills transfer. The India-EFTA TEPA includes a commitment from EFTA member states led by Switzerland to invest USD 100 billion and create 1 million jobs in India within 15 years of the agreement’s entry into force. This Indian innovation is being closely examined by other large developing economies seeking to emulate it in their FTAs.

 

FDI relies on the ease of doing business (EoDB). India has prioritised EoDB under Prime Minister Modi’s leadership since 2014 and has made significant progress. Over 39,000 compliance requirements have been streamlined, and over 3,400 legal provisions have been decriminalised. A comprehensive programme led by the Department for Promotion of Industry and Internal Trade (DPIIT), involving both central and state governments, has been established to implement reforms. This is crucial since the vast majority of clearances and procedures investors face fall under state governments’ jurisdiction. These ongoing efforts have elevated India’s rank in the World Bank’s EoDB Report from 142^nd in 2014 to 63^rd in 2019^[15].

 

India is also exploring innovations within FTAs to incorporate disciplines on investment facilitation that offer greater assurance to investors. India’s newer FTAs aim to include disciplines on good regulatory practices (GRP) that will help catalyse faster reforms within India, provide opportunities to learn from the best practices of its trade partners, and foster collaborations and capacity building in this area.

 

However, one area where India needs to bring greater policy focus and reform is Bilateral Investment Treaties (BITs). BITs protect foreign investors from adverse policy changes or conditions. The current model of BITs that India insists on is generally considered ineffective as it does not include disciplines that would assure foreign investors. For example, it excludes taxation policies from BITs, exposing foreign investors to sudden tax policy changes without any recourse in the investment treaty. They also require investors to exhaust all domestic legal remedies for a set period (e.g., five years) before resorting to international arbitration. This can lead to significant delays and discourage investors who prefer a quicker resolution process.

 

As India becomes an outward foreign investor, seeking access to essential raw materials, critical technology, and infrastructure assets to support its ambition of becoming a significant player in planned global trading corridors like IMEC, its firms will also require investment protection. Therefore, India’s BITs must reflect this dual reality: Indian investment may also need safeguarding in a world characterised by policy uncertainty and shifting geopolitical concerns, where countries may be inclined to alter policies that affect investments.

 

Technology

 

Despite rapid advancements in key areas of technology and engineering and some remarkable achievements in space, defence, biotechnology, and other fields, India has yet to catch up with its peers. In a global economy where competitiveness is defined by the ability to access, adopt, and develop cutting-edge technology, India must implement strategies that minimise impediments to the accessibility and adoptability of technology. Access to technology is critical for India’s successful integration and eventual leadership in two major transformations in the global economy: the green transition to more sustainable energy sources and the digital transition. Figure 5 illustrates India’s relative position among global tech leaders in critical technologies. India is ranked 9^th overall and significantly lags in areas such as semiconductors and quantum computing.

 

Figure 5: India’s relative performance in key technologies among technology leaders

Source: Taken from the Emerging and Critical Technologies Index, published by the Harvard Kennedy School, Belfer Centre for Science and International Affairs, June 2025

 

Technology denial is an inherent aspect of geopolitical tension. Technology leaders like the EU, the US, and Japan increasingly attempt to withhold technological know-how and hardware from less-trusted players. The US policy of restricting the export of high-performance AI chips to only a few trusted countries is but one example of such emerging challenges.

 

India’s independent courts and rule of law, which prevent technology theft and hold violators accountable, provide the foundation on which India could be regarded as a trusted partner for technology transfer by Western firms and countries. As FTAs enhance trade and investment linkages between India and industrialised economies, Western multinational technology leaders would have a significant incentive to engage in technology transfer and cooperation with India. As Table 2 illustrates, India ranks third among large developing and newly industrialised economies as a technology market and is the fastest-growing one.

 

Table 2: India as a market for technology: Relative importance among developing countries and NIE peers

Source: Calculations using the Trade in Services by Mode of Supply (TISMOS) database, WTO

 

India’s vast pool of highly skilled labour (see Figure 2) offers another key advantage in joint technology development and innovation. India has emerged as one of the largest defence procurers in the world. It has successfully leveraged its purchasing power to advocate for licensed production, joint product development, and technology partnerships. The recent successes in indigenous production and development are attributed to reforms in the procurement process and strategy involving the Indian private sector.

 

Military technologies have significant spillovers for non-military commercial applications. The US military-industrial complex is a prime example of cutting-edge commercial product development. From Ray-Ban sunglasses to the internet, the defence sector has been the source of some of the most successful commercial products. A strategic approach to India’s defence procurement, as it expands in scale and scope to facilitate technology transfer, is critical to India’s long-term trade and industrialisation policies. As Figure 3 illustrates, India is the world’s fourth-largest defence spender, and its spending growth is second only to China among the leading countries.

 

Table 3: India as a defence spender: Relative importance among leading economies

Source: Calculations using World Bank Development Indicators Database

 

However, defence is not the only area where India’s influence in government procurement is rapidly increasing. Indian government investment and procurement in renewables, telecommunications, transport, agriculture, and medicine should be effectively leveraged along the same lines as defence. Unlike in the case of defence, procurement in these other sectors is distributed across numerous departments and state governments. This dilutes the advantage of scale. A thought-out planning process is needed where procurement remains independent, yet is conducted in a coordinated manner to capitalise on scale advantages as an incentive for technology transfer and joint development in partnership with the Indian private sector.

 

Finally, as will be discussed later under industrial policy, India would need to engage actively in its multilateral trade strategy within the WTO to seek flexibilities in current WTO rules^[16] to use performance requirements related to investment that is trying to cash in on India’s large and growing market size. Such performance requirements may encompass technology transfer, training, or local sourcing (which facilitates tech transfer to local firms). For instance, a foreign firm keen on obtaining a share of India’s USD 10 billion per year industrial wastewater treatment market could be subjected to technology transfer and local content requirements to enhance India’s domestic capabilities in this vital area.

 

Developing Resilient Supply Chains

 

India depends significantly on foreign suppliers for critical goods and raw materials, including reliance on a single import source. In many instances, this singular source of imports is China, making India vulnerable to the potential weaponisation of supply chains. Figure 6 illustrates key areas of vulnerability for India.

 

Figure 6: Key Sectors and Associated Products of Supply-Chain Vulnerability for India

Source: Internal, unpublished analysis by the author

 

FTAs include disciplines that impose binding restrictions on partners, preventing export controls; that is, they reduce the risk of weaponisation of import dependencies. However, India has been reluctant to pursue deep commitments related to export controls due to its need to restrict exports of predominantly agricultural products to ensure food security and domestic price stability. Furthermore, India’s FTA strategy excludes China as a partner, even though dependencies on China define the majority of India’s supply-chain vulnerabilities. Nevertheless, India would benefit from reconsidering its soft commitments strategy to export controls with other trade partners, as such provisions are an essential mechanism for de-risking the supply chain. It should also be noted that WTO rules broadly prohibit export bans and restrictions, allowing members to apply them temporarily to prevent or alleviate critical shortages of foodstuffs or other essential products. However, WTO rules have been largely ineffective in preventing member states from restricting exports of various products.

 

India has also entered into agreements specific to supply chain security. These include the Indo-Pacific Economic Framework (IPEF) Supply Chain Agreement, which focuses on cooperation, information sharing, and joint crisis response mechanisms to minimise the impact of disruptions and enhance supply chain efficiency. India is also a signatory to the Mineral Security Partnership (MSP). The objective of the MSP is to coordinate policies among members to ensure effective access to critical minerals and collaborate to reduce dependencies on China overall.

 

India is also seeking to establish disciplines in its FTAs with countries that possess significant reserves of key natural resources, such as critical minerals, which will assist India in securing access to these resources. Examples of this strategy include discussions with Australia and Chile.

Indian policymakers are cognisant of the impact of disruptions at logistical chokepoints such as the Suez Canal and the Gulf of Aden. India has been focusing on creating alternative multi-modal linkages to supplement the routes where such chokepoints are situated. These initiatives include the International North-South Corridor (INSTC), linking India with Central Asia, Russia, and Europe, as well as the India-Middle-East-Europe Corridor (IMEC), which provides an alternative connection between the Indian Ocean and the Mediterranean Sea, bypassing the Suez Canal and the Gulf of Aden. Additionally, the trilateral highway offers overland connectivity between India, Southeast Asia, and the South China Sea. Unfortunately, these initiatives are progressing slowly due to geopolitical tensions and other operational challenges. Nonetheless, they remain essential objectives for India’s long-term supply chain resilience.

 

Last but not least, India must expand its domestic capabilities in key industries that are essential for national security, food security, and economic security. Industrial policy aimed at developing and enhancing indigenous capacity is crucial to this goal, and the next section discusses some pertinent issues regarding that topic.

 

Industrial Policy

 

India is increasingly caught between the aggressive use of state-led non-market unfair practices of the world’s largest industrial economy—China—and the well-funded industrial policies of advanced industrialised economies. Between them, these actors are attempting to squeeze out the competition in key sectors that will define the future of the global economy. India’s overall share in global manufacturing is a mere 2.9%, and in global manufacturing exports, it stands at 2.2%. Its share in high-tech sectors is just 2.7%. India must implement policies to support industrial development and competitiveness in these crucial sectors to catch up with dominant players. Since many of these policies could potentially conflict with WTO rules, for example, the performance requirements on foreign investment to aid technology transfer mentioned earlier, or subsidising inputs or credit for private industry, India would need to seek temporary flexibilities from such rules, arguing its developmental needs.

 

India must also find ways to discipline and limit unfair industrial policy actions that increase global developmental inequities and create global imbalances. This would entail countering China’s non-market unfair practices and finding ways to curtail aggressive and excessive industrial policies in the advanced industrial economies.

 

Achieving the above would necessitate independently pursuing each of the three objectives across different platforms with various sets of allies:

 

1. Pursuing flexibilities in global rules to create policy space for India’s industrial policy: India must ally with major developing countries in Asia, Africa, and Latin America, whose interests align. The group of African nations has already submitted proposals seeking similar solutions at the WTO. With the forthcoming WTO 14th Ministerial Conference, India would benefit from articulating a position that distinguishes the legitimate developmental aims of industrial policy in most developing countries from the predatory and mercantilist industrial policies found in non-market economies like China.

 

2. Pursue reforms in WTO rules that check unfair trade and industrial policies in non-market economies and hold them accountable: India’s interests broadly align with those of the US, EU, and Japan in this objective. India would benefit from making common cause with these developed economies and seeking to include as many developing countries as possible, which are also suffering from such unfair practices, in an alliance. In fact, the US, EU, and Japan might be willing to agree to allow market-oriented developing countries to pursue legitimate development goals with much greater freedom in using subsidies and state support in exchange for assistance in developing international disciplines to hold non-market economies accountable for their policies.

 

3. Ensure that developed economies are held accountable for their trade-distorting policies: India must define parameters of development (per capita income, absolute number of poor people), along with the extent of global economic capabilities that prevent already prosperous countries, which have dominant industrial sectors, from using subsidies and state support that undermine competition and lead to the domination of industrial sectors by global oligopolies.

 

Conclusion

 

India’s goal of Viksit Bharat will need to be achieved under far more challenging circumstances than those faced by countries like Japan, Korea, or China during their respective transitions. The world is experiencing a backlash against globalisation and open markets, geopolitical tensions are disrupting supply chains, and access to key technologies is becoming increasingly restricted for geostrategic reasons. The relatively open markets and globalising trends that had progressed from the twentieth century into the first decade of the 21st century are now being reversed.

 

Furthermore, technological shocks stemming from advancements such as automation and AI have significantly diminished the creation of new jobs linked to economic growth, making it increasingly easier and cheaper to replace human workers with machines. This reduction in space for ‘labour-intensive’ economic activities poses a considerable challenge for India, which must ensure productive engagement for the world’s largest working-age population.

 

Adding to all this complexity is the challenge of imbalance in the global economy due to a huge non-market economy that has not played by the international rules governing trade and has weaponised both access to its market and its sheer dominance of supply chains against its competitors.

 

Finding comprehensive solutions that help India meet its developmental objectives by using access to global markets for goods, services, and human resources will require a focused approach involving deeper bilateral integration with major economies and regions through FTAs. Such FTAs must be complemented by matching initiatives that attract foreign investment and ensure accessibility to key technologies. India must form effective alliances to tackle the challenge of supply-chain vulnerability and the weaponisation of over-dependence on a single trade partner.

 

All of this would require agility. India would often find itself allied with countries in opposing geopolitical camps as it pursues its priorities in the areas mentioned above. Balancing such complexities would demand finesse and a relentless pursuit of Indian interests. More importantly, it would necessitate consistency and continuity in Indian policies over this extended period.

 

 

Author Brief Bio: Dr. Pritam Banerjee is Professor & Head, Centre for WTO Studies, Indian Institute of Foreign Trade, New Delhi.

 

References

 

Autor, David (2019) Work of the Past, Work of the Future, Working Paper No. 25588, National Bureau of Economic Research (NBER)

 

Autor, David H., David Dorn, and Gordon H. Hanson. 2013. “The China Syndrome: Local Labor Market Effects of Import Competition in the United States.” American Economic Review 103 (6): 2121–68.

 

Acemoglu, D., Restrepo, P., 2020. Robots and jobs: Evidence from US labour markets. Journal of Political Economy 128, 2188-2244.

 

Artuc, E, Christiaensen, L, Winkler, H. (2019) Does automation in rich countries hurt developing ones? Evidence from the us and Mexico. Evidence from the US And Mexico (February 14, 2019). World Bank Policy Research Working Paper No. 8741

 

Bai, Liang and Sebastian Stumpner. 2019, “Estimating US Consumer Gains from Chinese Imports.” American Economic Review: Insights, 1 (2): 209–24

 

Banerjee, P, Hussain, Z, and Karwal, K. (2025a) Navigating the Development Divide: The Case for Policy Space in India’s Industrial Policy Strategy Amid Rising Global Protectionism, Centre for Research in International Trade (CRIT) Working Paper No. 85

 

Banerjee, P, Vartul, Mandal, S, and Dua, D. (2025b) Negotiating for Digitally Delivered Services- Framework for a Comprehensive Approach, Centre for Research in International Trade (CRIT) Working Paper No. 82

 

Boullenois, C, and Jordan, J.A. (2024) How China’s Overcapacity Holds Back Emerging Economies’, Rhodium Group, June

 

Caliendo et al. (2019) ‘Trade and Labor Market Dynamics: General Equilibrium Analysis of the China Trade Shock’, Econometrica, 87(3),

 

Guintella, O, Yi, L, and Wang, T (2022) How Do Workers and Households Adjust to Robots? Evidence from China, Working Paper No. 30707, National Bureau of Economic Research (NBER)

 

Jaravel, X and E Sager (2019), ‘What are the Price Effects of Trade? Evidence from the U.S. and Implications for Quantitative Trade Models’, CEPR Discussion Paper No. 13902 and

 

Laget, E, Rocha, N, and Varela, G. (2021) Deep Trade Agreement and Foreign Direct Investments, World Bank Policy Research Paper No. 9829

 

 

 

Endnotes

^[1] Chinese state control of Banking and other investment agencies de-links investment decisions from market risks, and thereby expansion of capacities are not based on market based, risk informed decisions which would have otherwise prevented such investments

^[2] How China’s Overcapacity Holds Back Emerging Economies’, Rhodium Group, June 2024

^[3] Examples include Jaravel, X and E Sager (2019), ‘What are the Price Effects of Trade? Evidence from the U.S. and Implications for Quantitative Trade Models’, CEPR Discussion Paper No. 13902 and Bai, Liang and Sebastian Stumpner. 2019, “Estimating US Consumer Gains from Chinese Imports.” American Economic Review: Insights, 1 (2): 209–24.

^[4] Based on unpublished empirical research carried out by the author

^[5] See China’s export ban on engineers and equipment disrupts manufacturing overseas, Strait Times, Published Jan 20, 2025, Singapore

^[6] See China’s rare-earth curbs hit Indian auto industry, India Today, June 16^th, 2025

^[7] India-UK FTA was finalised in May 2025 and is expected to come into force in early 2026

^[8] India has completed an early-harvest agreement with Australia and is currently negotiating to complete the comprehensive deal

^[9] India is currently pursuing a Bilateral Trade Agreement with the US

^[10] India has on-going negotiations with Oman

^[11] India’s neighbours are already covered by South Asia Free Trade Agreement or SAFTA

^[12] Friendshoring refers to the practice of developing more resilient supply-chains by sourcing imports from countries that are more dependable, politically aligned and generally considered to be market oriented and rules based.

^[13] These sectors typically have the maximum potential for future growth includes electronics, advanced engineering, chemicals, pharmaceuticals, precision engineering included robotics, renewable energy etc

^[14] For a more detailed discussion, see Banerjee et al 2025b

^[15] The Make in India Ease of Doing Business page provides a complete list (refer to: https://www.makeinindia.com/eodb#:~:text=India%20jumps%2079%20positions%20from,of%20Doing%20Business%20Ranking%202020′.&text=To%20further%20enhance%20the%20ease,legal%20provisions%20have%20been%20decriminalized)

^[16] Under the WTO agreement on Trade Related Investment Measures or TRIMS

The brutal massacre of innocent tourists in Pahalgam on 22 April by five heavily armed terrorists of The Resistance Front (TRF), a proxy of the Pakistan-based Islamist terrorist group Lashkar-e-Taiba (LeT), marked a watershed moment in India’s war against terrorism. The attack, timed to coincide with the visit of U.S. Vice President JD Vance to India, was no coincidence. It was a calculated move intended to internationalise the Kashmir issue and sow communal discord within India. The terrorists and their sponsors failed on both counts. An outraged India rallied together, united in grief, anger, and resolve, and demanded justice for the victims. That justice was delivered on the night of 6-7 May through Operation Sindoor.

 

A press briefing on 23 April by India’s Foreign Secretary, Shri Vikram Misri, set the stage for what was to follow. He informed the media that the Cabinet Committee on Security (CCS), chaired by the Prime Minister, had convened to assess the evolving security situation. The CCS resolved to bring the perpetrators of the attack to justice and hold their sponsors accountable. As an immediate response, the Indus Waters Treaty of 1960 was suspended, and the Integrated Check Post at Attari was closed. Visas issued under the SAARC Visa Exemption Scheme (SVES) were also cancelled. Additionally, the military, naval, and air advisors at the Pakistani High Commission in New Delhi were declared persona non grata and instructed to leave the country.

 

Prime Minister Narendra Modi, in a public rally just 48 hours after the deadly Pahalgam attack, assured the nation that justice would be delivered. Switching to English, in his address, he declared, “Today, from the soil of Bihar, I say this to the whole world, India will identify, track and punish every terrorist and their backers.”^[1] This was an unambiguous statement of intent. The promised retribution came fifteen days later, through Operation Sindoor. In multiple attacks carried out by the Indian Armed Forces in the early hours of 7 May, nine headquarters, training establishments and other infrastructure of three terrorist groups—Lashkar-e-Taiba, Jaish-e-Mohammad, and Hizbul Mujahideen were destroyed. Five of these targets were in POJK (Pakistan Occupied Jammu & Kashmir) and four in Pakistan’s Punjab province. About 140 terrorists were eliminated in this attack, and the headquarters of the LeT and JeM were destroyed.

 

Operation Sindoor marked an inflexion point in India’s response to cross-border terrorism. The hesitations of the past in confronting a neighbour that had long employed terrorism as a tool of state policy were gone. The assumption that nuclear weapons would shield such actions from a robust Indian response no longer held true. The doctrine of ‘strategic restraint’ had been decisively set aside, signalling a new assertiveness in India’s national security policy.

Strategic Restraint: the Background

 

‘Strategic Restraint’ characterised India’s approach to terrorism since the early 1990s. It was a defensive strategy aimed at preventing acts of terrorism. To that end, in the hinterland, a specialised counter-insurgency force, the Rashtriya Rifles, was formed from within the Indian Army to address the escalating insurgency in Jammu and Kashmir. The Rashtriya Rifles quickly established dominance, eliminating a significant number of terrorists and containing violence levels. However, as the losses suffered by terrorist groups were rapidly compensated through infiltration from across the LoC, the number of terrorists operating in J&K did not decline.

 

In the early 2000s, a fence was constructed along the International Border (IB) and the Line of Control (LoC) to check infiltration. The BSF was tasked with actively guarding the fence along the IB, while the Army was responsible for securing the LoC. These measures contributed to a reduction in Pakistan-sponsored cross-border infiltration. However, as Pakistan continued to support the terrorists, such infiltration could not be entirely eliminated.

 

The policy of strategic restraint did not envisage the use of force to deter the Pakistani military. The nuclear tests conducted by both India and Pakistan in 1998 provided Pakistan with the leverage to continue supporting cross-border terrorism under a nuclear overhang. Within India’s security establishment, there was genuine concern that military action against a nuclear-armed Pakistan could provoke a potential nuclear response. Ambiguous yet ominous statements from Pakistan’s political and military leadership, suggesting the possibility of using nuclear weapons to counter an Indian offensive, further reinforced this belief. Consequently, when Pakistani forces infiltrated the Kargil heights in early 1999, India intentionally restricted its military operations to its side of the LoC, signalling a cautious yet calculated employment of military power under the shadow of nuclear deterrence.

 

For the Pakistani establishment, cross-border terrorism represented a low-cost option to continue to bleed India by a thousand cuts—a policy first articulated by Pakistan’s Prime Minister ZA Bhutto after the country’s defeat in the 1971 war. For India, maintaining a significant security presence in Jammu and Kashmir to control levels of violence in the state imposed substantial costs in human and material resources. Despite the increased security presence, acts of violence continued, albeit at manageable levels.

 

The Pakistani state and its military were not impacted by the Indian response, which was directed at preventing infiltration and operating against terrorists in the hinterland. This allowed the Pakistani state to operate with impunity and claim deniability over the actions of the terrorist groups. Consequently, a significant number of high-profile terrorist attacks occurred in India during the first decade of the new millennium. These included an attack on India’s Parliament in 2001 by five Jaish-e-Mohammed terrorists, the 2002 Akshardham Temple attack by Lashkar-e-Taiba (LeT), the 2005 and 2008 Delhi bombings, and the 2008 Mumbai attacks, which were also carried out by the LeT. Predictably, Pakistan denied having a role in these attacks, claiming them to be the handiwork of “freedom fighters”. India’s ‘Strategic Restraint’ policy thus failed to deter Pakistan from sponsoring such attacks. A policy shift was necessary.

 

When the NDA government came to power with a substantial majority in 2014, it initially aimed to improve relations with Pakistan. Prime Minister Modi invited the Pakistani premier to his swearing-in ceremony on 26 May 2014. As the year drew to a close, in a move that surprised most observers, Prime Minister Modi, while returning from Afghanistan, made an unscheduled stop in Lahore to attend the wedding of Nawaz Sharif’s granddaughter on 25 December.^[2] This was intended as an ice-breaker, but the bonhomie lasted only a few days. Just a week later, on New Year’s Day 2016, during the night of 1-2 January 2016, Pakistan-backed terrorists attacked the Indian Air Force (IAF) base at Pathankot. The terrorists were neutralised and prevented from causing damage to the IAF’s strategic assets, but seven defence personnel lost their lives and 25 were injured.^[3] The brief period of bonhomie was over.

 

The Shift to Deterrence

 

Despite this grave provocation, India continued with its strategic restraint policy. The first glimmer of a policy change in the offing came about following the ambush of an Indian Army convoy in Manipur on 9 June 2015, in which 18 soldiers were killed. The terrorist group NSCN-K claimed responsibility for this outrage. A few days later, in a covert operation code-named “Operation Hot Pursuit”, India’s Special Forces targeted the training facilities and camps linked to NSCN-K a few kilometres inside Myanmar.^[4] The success of this operation drew wide applause, but the Pakistani reaction was dismissive. Responding to the then Minister of State for Information and Broadcasting Rajyavardhan Singh Rathore’s remarks that military action in Myanmar to retaliate against rebels who killed 18 soldiers in Manipur was a message to other countries, Pakistan’s interior minister Nisar Ali Khan stated, “Pakistan is not like Myanmar” and warned that the threats from across the border would not intimidate Pakistan.^[5] He and other leaders in Pakistan also obliquely threatened India with nuclear retaliation should India attempt a similar operation against Pakistan.

 

A terrorist attack on an army post in Uri on 18 September 2016 marked a pivotal moment in India’s response to incidents of terrorism emanating from Pakistan. In this attack, claimed by Jaish-e-Mohammed, a Pakistan-based terrorist group, 19 Indian soldiers lost their lives. Responding to the incident, Prime Minister Modi stated, “We strongly condemn the cowardly terror attack in Uri. I assure the nation that those behind this despicable attack will not go unpunished.” Ten days later, on the night of 28-29 October, the Indian Army launched a surgical strike on seven launch pads located a few kilometres across the LoC, in which a significant number of terrorists were eliminated.^[6] During a briefing for the media the following afternoon, the Indian Army’s Director General of Military Operations, Lt Gen Ranbir Singh, provided details of the strikes. “Significant casualties have been caused to the terrorists and those who are trying to support them”, he stated. “We do not have any plans for the continuation of further operations. However, the Indian armed forces are fully prepared for any contingency,”^[7] he added.

 

The surgical strikes represented a significant shift in India’s approach to cross-border terrorism, suggesting that the ‘strategic restraint’ policy was being replaced by deterrence. For the first time, India had demonstrated an intent to strike overtly at terrorist targets across the LoC and, in the process, had also called out the Pakistani nuclear bluff.

 

While Pakistan opted not to respond to the surgical strikes, it continued to support terrorist groups operating within J&K. Consequently, there was no significant change in the number of terrorist acts of violence, which remained relatively consistent over the subsequent three years.^[8] However, there were no targeted acts of violence involving casualties significant enough to impact a large number of people. Also, no terrorist acts took place outside of Jammu and Kashmir.

 

That changed in 2019, when, on 14 February, in Pulwama, a bustling town about 25 kilometres south of Srinagar, a suicide bomber drove his vehicle into a bus that was part of a CRPF convoy, resulting in the deaths of 40 CRPF personnel. The suicide bomber was identified as Jaish-e-Mohammad’s Adil Ahmed Dar.^[9] Two weeks later, India retaliated by attacking the Jaish-e-Mohammad headquarters in Balakot on 26 February.

 

The Balakot air strike was again a departure from the strategic restraint policy. IAF jets flew across Pakistani airspace and hit a JeM facility in Balakote, Khyber Pakhtunkhwa, approximately 80 km deep inside Pakistan. The facility, located atop a forest hilltop about 20 km from Balakot, was run by Muhammad Yusuf Azhar, the brother-in-law of Masoor Azhar, a wanted terrorist. It was reportedly a training camp, with a capacity of about 600, training terrorists in the use of weapons and explosives. Indian sources claimed that the attack killed between 200 and 350 terrorists who were in the buildings at that time. Pakistan, predictably, denied any loss of life, but retaliated thereafter with an air strike on an Indian forward post. In the process, an Indian MiG-21 fighter jet piloted by Wing Commander Abhinandan shot down a returning Pakistani F-16 in aerial combat. However, as his jet was also hit, he ejected over Pakistan-Occupied Kashmir and was captured by the Pakistani military. Two days later, he was released, ending the brief conflagration.

 

The Balakot air strike was significant for two reasons. First, it marked India’s first air strike on Pakistani territory since the 1971 war—and notably, in an undisputed area—signalling once again a shift away from its traditional posture of “strategic restraint”. Second, Pakistan’s swift release of the captured Indian Air Force pilot indicated a reluctance to escalate into full-scale conflict, deviating from its usual strategy of leveraging the threat of nuclear confrontation to prompt Indian caution and international intervention, particularly from the United States. India called Pakistan’s bluff, and Pakistan blinked. As Christine Fair put it, “Pakistan has nuclear weapons it cannot use because, while India will suffer tragic losses from Pakistani launches, Pakistan will cease to exist as a geopolitical entity after India responds in kind.”^[10]

 

The Balakot air strike established a new normal in India’s approach to addressing cross-border terrorism. The use of air power, previously seen as a significant escalation, was no longer taboo. Through this strike, India affirmed its right to defend itself by targeting terrorist objectives wherever they may be.

 

The Jammu and Kashmir Reorganisation Act of August 2019, which followed a few months later, was also a significant step taken to restore normalcy in Jammu and Kashmir and break the linkages Pakistan had cultivated with various groups in the state. The Act revoked the state’s special status and divided it into two Union Territories: Jammu and Kashmir and Ladakh, with both coming under the President’s rule. During the following five years, until elections were held in September 2024, the Union Territory of Jammu and Kashmir witnessed a dramatic decline in casualty figures.^[11] In the Kashmir Valley, the significant improvement in the security situation resulted in zero incidents of hartals, shutdowns, or stone-pelting demonstrations, which had been common earlier. Terrorist attacks in the Kashmir Division fell to 126 in 2021, then to 103 and 29 in the following two years, eventually reducing to single digits in 2024.^[12] The number of tourists visiting the valley rose to record levels, with over three million visiting in 2024.^[13]

 

Pakistan’s declining ability to incite separatism in Jammu and Kashmir was likely the underlying cause of the terrorist attack in Pahalgam on 22 April. The cold-blooded murder of 26 tourists, after identifying their religious identity, appeared to be a desperate attempt by Pakistan to maintain its relevance in the Union Territory. Within minutes of the Pahalgam attack, the TRF claimed responsibility.

 

The Doctrine of Compellance

 

In his address to a rally in Bihar, Prime Minister Modi made it clear that terrorists and their sponsors would face the wrath of the Indian state. Fearing a severe backlash from India and the international community, TRF, likely under Pakistani prodding, swiftly backtracked on its claim, but the evidence against it was overwhelming. As Prime Minister Modi had made it clear that India would respond strongly, Pakistan heightened its security nationwide. Nevertheless,  the scale and ferocity of the Indian response took the Pakistan army and political establishment by surprise.

 

‘Operation Sindoor’ was conceived to punish the perpetrators and planners of terror and to destroy the terror infrastructure across the border. Accordingly, on the night of 6-7 May, the Indian Armed Forces launched coordinated and accurate missile strikes on nine terrorist bases—four located in Pakistan (including the headquarters of LeT and Jaish-e-Mohammed (JeM) in Muridke and Bahawalpur, respectively), and five in Pakistan-occupied Jammu and Kashmir (including Muzaffarabad and Kotli). All the terrorist bases struck were key command centres of the LeT and JeM.

 

What was significant about “Operation Sindoor” was Pakistan’s failure to protect its airspace, despite deploying the much-vaunted Chinese-made equipment: the long-range HQ-9 and the medium-range HQ-16 series of SAMs (Surface to Air Missiles). India successfully destroyed the terrorist camps in under 30 minutes, with none of its missiles being intercepted by the Pakistani air defence system. As India did not wish to escalate the conflict, the Indian Army’s DGMO immediately informed his Pakistani counterpart of India’s strike, stating that India had not attacked any Pakistani military target and that any response by Pakistan to Indian military targets would provoke a suitable response.

 

Pakistan, however, chose to escalate the conflict, and over the next 72 hours, attacked Indian cities and military bases using drones and missiles. India’s air defence system successfully intercepted all incoming threats, resulting in minimal loss of life or property. In retaliation for Pakistani aggression, India deployed kamikaze drones to neutralise Pakistan’s air defence capabilities, and Lahore’s air defence system was disabled. On the night of 9-10 May, India intensified its counter-offensive. Within three hours, 11 military installations, including Noor Khan, Rafiqui, Murid, Sukkur, Sialkot, Pasrue, Chunian, Sargodha, Skardu, Bholari, and Jacocabad, were struck, causing extensive damage. Pakistan’s air capability thereafter stood seriously degraded, forcing it to seek a ceasefire. This was a significant demonstration of India’s military and strategic power.^[14]

 

Through a combination of kinetic and non-kinetic measures, remarkable political leadership, and skilled diplomatic manoeuvres, a new security doctrine has emerged, which I call the doctrine of compellence. The strategic restraint observed from the 1980s was replaced by deterrence in 2016, as exemplified by the surgical and Balakot air strikes. Now, Operation Sindoor has set the stage for a comprehensive strategy to compel Pakistan to desist from supporting terrorist attacks originating from its soil. In the future, the policy’s kinetic impact will focus on the Pakistan military. This was made clear by the Prime Minister in his address to the nation on 12 May, where he stated that Operation Sindoor has established a new benchmark in India’s fight against terrorism and has introduced a new parameter and a new normal. Three significant points emerged from the Prime Minister’s address. One, India will strike at every location from which the roots of terrorism emerge. Two, India will not tolerate any nuclear blackmail, and three, India will not differentiate between the government sponsoring terrorism and the masterminds of terrorism.^[15]

 

The compellence doctrine establishes new paradigms for deterrence and response. Henceforth, all acts of terror against India will trigger a clear, forceful, and coordinated whole-of-government response, encompassing both kinetic and non-kinetic measures. India will no longer distinguish between terrorists and those who sponsor them—both will be held equally accountable and targeted in its responses. All of Pakistan’s territory is now within the scope of potential Indian action, which will be carried out through coordinated tri-service operations. Nuclear threats from Pakistan will not deter India from taking firm and resolute measures to safeguard its national security and respond decisively to cross-border terrorism. As part of reframing its response strategy, India has decoupled the Kashmir issue from its strike narrative and will act solely through the lens of counter-terrorism. In doing so, India will operate unilaterally and will not seek global approval for its actions. Through this doctrine, India has redefined the rules of engagement and established new red lines.^[16]

 

The non-kinetic measures designed to compel Pakistan to abjure terrorism target the Pakistani state. Among these, linking cooperation on sharing the waters of the Indus River and its tributaries to Pakistan abjuring terrorism will have the most significant impact, as it instils uncertainty in Pakistan’s agricultural sector. “Blood and water cannot flow together” is not merely a slogan but a reality Pakistan must now confront. This will severely affect Pakistan’s Punjab province, which holds considerable influence over the country’s polity. This province relies heavily on the waters of the Jhelum and Chenab Rivers and is, consequently, the most severely impacted by Indian actions upstream of these rivers.

 

The other significant aspect of the non-kinetic response is that India’s engagement with Pakistan on any issue will be conditional, requiring Pakistan to dismantle its terror apparatus. There is no change to the Indian stance that talks and terrorism cannot go together. Discussions on the Kashmir issue will be restricted to the return of the territory illegally occupied by Pakistan, which includes Gilgit-Baltistan and the region of Mirpur-Muzaffarabad.

 

The Challenges Ahead

 

While a new doctrine has been enunciated, future challenges revolve around its execution. For instance, what will be the Indian response if Pakistan-based terrorists attack a military convoy, resulting in the loss of a couple of soldiers’ lives? Will the response match the scale of Operation Sindoor? If not, what will be India’s level of tolerance towards Pakistani-sponsored terrorist attacks?

 

How will India respond to instances of cross-border infiltration and violations of Indian airspace by drones operated from Pakistan? There would be a need for greater clarity on these issues. If the policy is to be zero tolerance, then India must be prepared to respond firmly to every act of terror, even if such terrorist acts are thwarted and cause no damage. In any case, each act of Pakistan-sponsored terrorism must be responded to in a manner that imposes heavy costs on the sponsors.

 

There is a view, especially among some former Indian diplomats, that India’s stated policy of no talks with Pakistan till it forsakes terrorism is counter-productive. The view expressed is that any meaningful progress can occur only through talks. However, talks have yielded little so far, and there is nothing to suggest that Pakistan will be more amenable to forgoing terrorism if negotiations are resumed. A more positive outcome could be obtained by making Pakistan bear the brunt of its policies. Hence, combining non-kinetic and kinetic measures to deter Pakistan may serve India’s interests better. The challenge is to keep the pressure on Pakistan, without getting derailed by internal voices seeking peace at any cost. If sufficiently high costs can be imposed on Pakistan, that could elicit a behaviour change.

 

For the policy to be impactful, India must have a decisive military edge over Pakistan. This edge must be maintained at all times.

 

Conclusion

 

India-Pakistan relations remain at a historic low, with little prospect of improvement in the foreseeable future. India is focused on its long-term developmental trajectory, aiming to become a USD 30 trillion economy by 2047. It cannot afford to be distracted by a belligerent neighbour that continues to pursue a policy of bleeding India through a thousand cuts.

Decades of experience have demonstrated that Pakistan is unlikely to alter its hostility unless compelled to do so through the imposition of meaningful costs. In this context, the new strategic framework initiated through Operation Sindoor represents a pivotal shift. It offers India a credible opportunity to reshape Pakistan’s calculus and compel a reconsideration of its priorities.

The doctrine of compellence—a mix of kinetic and non-kinetic instruments—provides the most viable path towards enforcing a peace that Pakistan cannot ignore. In the current environment, a forced peace—rather than an imagined reconciliation—is the most achievable outcome.

 

Author Brief Bio: Maj. Gen. Dhruv C. Katoch is Editor, India Foundation Journal and Director, India Foundation

 

References:

^[1] India Will Identify, Trace, Punish Every Terrorist and Their Backers: PM Modi –. 24 Apr. 2025, www.newsonair.gov.in/india-will-identify-trace-punish-every-terrorist-their-backers-pm-modi.

 

^[2] Rishi, Shubir. “Modi Makes Surprise Visit to Pakistan, Attends Nawaz’s Grand-daughter’s Wedding.” Rediff, 25 Dec. 2015, www.rediff.com/news/report/surprise-modi-to-drop-in-for-nawazs-birthday-in-lahore/20151225.htm.

 

^[3] Terrorist Attack at Air Force Station Pathankot. www.pib.gov.in/newsite/PrintRelease.aspx?relid=136914.

^[4] Dhingra, Ashok K. “Operation Hot Pursuit: The Indian Army’s Surgical Strikes Into Myanmar.” Fair Observer, 16 May 2025,

www.fairobserver.com/region/central_south_asia/operation-hot-pursuit-the-indian-armys-surgical-strikes-into-myanmar.

 

^[5] IndiaToday.In. “Pakistan Is Not Myanmar: Pakistan Minister to India.” India Today, 10 June 2015, www.indiatoday.in/india/story/pakistan-is-not-myanmar-nisar-ali-khan-manipur-ambush-256792-2015-06-10.

 

^[6] Correspondent, Ht. “India’s Surgical Strikes Across LoC: Full Statement by DGMO Lt Gen Ranbir Singh | Latest News India – Hindustan Times.” Hindustan Times, 29 Sept. 2016, www.hindustantimes.com/india-news/india-s-surgical-strikes-across-loc-full-statement-by-dgmo-lt-gen-ranbir-singh/story-Q5yrp0gjvxKPGazDzAnVsM.html.

 

^[7] “Transcript of Joint Briefing by MEA and MoD (September 29, 2016).” Ministry of External Affairs, Government of India,

www.mea.gov.in/media-briefings.htm?dtl/27446/Transcript_of_Joint_Briefing_by_MEA_and_MoD_September_29_2016.

 

^[8] List of Terrorist Killed in India | South Asian Terrorism Portal. www.satp.org/datasheet-terrorist-attack/major-incidents/india.

 

^[9] Haidar, Suhasini. “Latest Pulwama Attack 2019 News, Photos, Latest News Headlines About Pulwama Attack 2019-The Hindu.” The Hindu, www.thehindu.com/topic/pulwama-attack-2019.

 

^[10] Fair, C. Christine. “Pakistan’s Pulwama Game Plan: It Is Obsessed With Changing Maps in Kashmir and Retarding India’s Global Ri.” Times of India Voices, 25 Feb. 2019, timesofindia.indiatimes.com/blogs/toi-edit-page/pakistans-pulwama-game-plan-it-is-obsessed-with-changing-maps-in-kashmir-and-retarding-indias-global-rise.

 

^[11] “Transcript of Joint Briefing by MEA and MoD (September 29, 2016).” Ministry of External Affairs, Government of India,

www.mea.gov.in/media-briefings.htm?dtl/27446/Transcript_of_Joint_Briefing_by_MEA_and_MoD_September_29_2016.

 

^[12] Ramachandran, Sudha. “Jammu and Kashmir: Five Years After the Abrogation of Its Autonomy”

https://thediplomat.com/2024/08/jammu-and-kashmir-five-years-after-the-abrogation-of-its-autonomy/

 

^[13] KL News Network. “Kashmir Sees 9.2 Million Tourists in 6 Years, 1.4 Lakh From Abroad.” Kashmir Life, 20 May 2025, kashmirlife.net/kashmir-sees-9-2-million-tourists-in-6-years-1-4-lakh-from-abroad-391550.

 

^[14] Operation SINDOOR: India’s Strategic Clarity and Calculated Force. www.pib.gov.in/PressReleasePage.aspx?PRID=2128748#:~:text=The%20results%20of%20Operation%20SINDOOR,Mohammed%2C%20and%20Hizbul%20Mujahideen%20facilities.

 

^[15] English Rendering of PM’s Address to the Nation. www.pib.gov.in/PressReleasePage.aspx?PRID=2128268#:~:text=Our%20brave%20soldiers%20displayed%20immense,every%20daughter%20of%20the%20country.

 

^[16] Operation SINDOOR: India’s Strategic Clarity and Calculated Force. www.pib.gov.in/PressReleasePage.aspx?PRID=2128748#:~:text=The%20results%20of%20Operation%20SINDOOR,Mohammed%2C%20and%20Hizbul%20Mujahideen%20facilities.