Opinion | How Trade Deals With EU And US Could Ignite A Manufacturing Revolution In India

Last Updated:February 19, 2026, 16:31 IST

Together, the European Union and the United States are a $50+ trillion opportunity for India with a very wide scope for investments.

This month a very interesting piece appeared in The Economist magazine penned by Arvind Subramanian, former Chief Economic Adviser (2014-2018) to the Government of India, predicting how the recently concluded trade arrangements with the United States and the European Union may finally unlock the country’s potential as a manufacturing powerhouse. The piece also mentioned how this leaves India as one of the world’s most open economies, a sharp break from its protectionist stance under the current government.

There is little to disagree with Subramanian here. The prediction that India may finally become the manufacturing centre of the world is something that will resonate with many other analysts. Similarly, he is not wrong in calling the current dispensation protectionist either. There have been more trading arrangements in the last four years than in the first seven years of the Modi government. However, all these facts tell a story not of an inward-looking India but of an India which was preparing fresh ground before reintegrating with the global economy once again. Thus, India did turn inwards albeit briefly, but it always had the intention to participate in global trade only after undergoing a domestic reset.

In 2014, when Narendra Modi came to power with the promise of implementing a Gujarat-style development model at the national level as well, India was already part of several trading arrangements, key among which were its FTAs with East and Southeast Asia including Japan, South Korea and ASEAN countries. This was also combined with former Prime Minister Manmohan Singh’s doctrine of interdependence, where he argued that good political relations with neighbours such as China would automatically follow if there were co-dependence in areas such as the economy and trade.

As a result, China, which stood as a minor trading partner until 2004, gave a burgeoning trade deficit to India by 2014. Thus, mindless trade liberalisation without taking into account the interests of domestic manufacturers had created a mammoth issue in the form of Indian markets being flooded with cheap imports, a problem that the Modi government had tragically inherited.

No wonder, one of the first steps it took was to set up an independent working group under CEA Arvind Subramanian so as to review the impact of India’s existing trading arrangements. This was motivated by a feeling that India had given away too much in trade negotiations while getting too few tangible benefits in return. What followed was a seven-year freeze on trade negotiations by India, which ended only in 2021 when it signed an FTA with Mauritius.

In fact, the period between 2014 and 2021 was marked by a phase of temporary protectionism by India, where it spent a great deal of energy imposing tariffs on products across multiple sectors to protect its domestic manufacturing. From 13 per cent in 2014, India’s average applied tariffs rose to 18 per cent by the early 2020s to provide a level playing field to Indian manufacturers. This also included China-centric tariffs on steel, electronics, toys and auto parts among a host of many other anti-dumping duties.

This definitely earned India the title of a ‘protectionist country’, especially in 2019 when it withdrew from the China-led Regional Comprehensive Economic Partnership. Despite all this criticism coming its way, the country knew what it was doing. While barriers were being erected on the foreign front, internally the government was ironing out existing obstacles to its manufacturing industry in the form of a complicated taxation regime and replaced it with a much simpler common Goods and Services Tax (GST).

This was accompanied by the Make in India initiative, as part of which the government also started doling out production-linked incentives to domestic and foreign manufacturers to reward them for producing manufactured goods with India as the base. In the past few years, the PLI scheme has performed well in increasing production and exports in multiple sectors including electronics and pharmaceuticals.

While the Modi government was investing efforts in creating a nascent manufacturing ecosystem in the country, one that could help it substitute imports from mercantilist economies such as China and also increase India’s own share of global exports, there came supportive tailwinds in the form of the Covid-19 crisis and the world’s brute realisation of the fact that dependence on China for manufacturing is too risky a gamble for supply chain resilience.

Thus was born the ‘China+1’ strategy, where global capital started looking at alternatives beyond China to set up their manufacturing base. It was a blessing for India because soon many companies like Apple, one of the world’s most sought-after smartphone manufacturers, opened their manufacturing facilities in India, sending a strong message about the country’s potential to replace China.

Thus, the last decade was marked by a reorientation in India’s approach towards global trade integration, where it has shifted attention from its neighbours in East and Southeast Asia that treated India as a one-way market for their cheap imports to the advanced markets in Europe and the United States. A large degree of complementarity exists in India’s equation with them as they are advanced economies with higher-value opportunities, while India can capitalise on the low-cost manufacturing model to service their vast domestic markets. All was going well until the Trump administration imposed a 50 per cent tariff on Indian products, rendering them completely uncompetitive in comparison to other low-cost alternatives.

However, this month many new developments have come in India’s favour, as Arvind Subramanian also notes in his piece. Firstly, the interim trade arrangement agreed upon between India and the United States has brought effective tariff rates down to 18 per cent from the draconian 50 per cent. This provides a significant edge to Indian products in comparison to several low-cost competitors such as Vietnam, Thailand and Bangladesh. Here the element of complementarity is very high as the main items of import from the US are going to be technologically advanced and high-value products, while India’s nascent manufacturing industry will export low-cost, labour-intensive products where it has a comparative advantage.

This is also true for India’s trade deal with the European Union where the country’s low-cost and labour-intensive manufacturing industry will get access to a $20+ trillion collective European market, while its imports will be high-value sophisticated machinery and transport equipment required as intermediate goods in the country’s factories.

Case in point is the tariff cut on European luxury cars by India from 110 per cent to just 10 per cent. This will bring a change in the India strategy of these automobile majors who will now be willing to commit to deeper localisation in the country, thus providing a fillip to the Make in India initiative. Similarly, India’s aircraft imports from the United States as part of the interim arrangement will go up in volume, but at the same time zero-duty access to Indian components has also brought the country on par with other suppliers such as Europe, Japan and South Korea for the United States. Boeing has already shown interest in cultivating India as its largest overseas component supplier.

Together, the European Union and the United States are a $50+ trillion opportunity for India with a very wide scope for investments. After taking a break from trade negotiations for almost a decade, a reformed India is now back in the game. On the surface, the FTAs that it is now inking are very promising with prospects to transform the country’s economic fate.

Currently, India’s share in global manufacturing exports is just 2 per cent as against other top economies including China, the US, Germany and even Japan. The year 2047, when PM Modi has promised a ‘Viksit Bharat’, is now just two decades away. In this context, trade agreements with the US and EU are a welcome step and one can only hope that this historic openness in India’s economy for the first time ever will translate into resounding success.

(The author is a New Delhi-based commentator on geopolitics and foreign policy. She holds a PhD from the Department of International Relations, South Asian University. She tweets @TrulyMonica. The views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect News18’s views)

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