Global economic engagement is and was riddled with contradictions. We aspired for growth yet feared competition. This diffidence shaped our early approach to trade. PM Narendra Modi has acted with panache. The present engagement on FTAs with the EU and US represents a discontinuity with the past. The US deal is not an isolated initiative but integral to a long, uneven journey from protectionist to purposeful participation in global trade.
After Independence, barter trade was inescapable. In the gray corridors of the Soviet bloc, we swapped tea for machinery and rice for oil. It was a world where freedom of choice was traded for the comfort of certainty. State entities like the State Trading Corporation and the Mines and Minerals Trading Corporation canalised foreign trade in a debilitating trade regime. I witnessed this caution firsthand in 1973 while negotiating concessional oil with the Shah of Iran as the global economy buckled under the first oil crisis. Today, however, our deepening engagement with the United States represents the shedding of that protectionist skin.
My engagement with these issues began in 1969 when I joined as undersecretary in the Ministry of Commerce. I participated in GATT and UNCTAD negotiations and later during the transition to the WTO. At the time, we took pride in negotiating stratospheric bound tariff rates while keeping applied rates at more acceptable levels. As Anne Krueger argued, such protectionist regimes encourage rent-seeking, stifle competitiveness, and misallocate resources.
The Tokyo Round attempted to discipline non-tariff barriers, but the Uruguay Round altered the landscape by creating the WTO. It expanded non-trade sovereign obligations. For developing nations, this sharpened anxieties. It introduced non-trade issues of investment and procurement policy into a forum designed primarily for trade issues. These divides were further exposed in Cancun and later in Seattle. On December 1, 1999, during the Seattle WTO Ministerial Conference, President Bill Clinton’s attempt to introduce labour and investment standards met with massive protests. PM Atal Bihari Vajpayee tasked me to assist the delegation’s leader, Murasoli Maran, then Minister of Commerce and Industry. The US presidency’s whims derailed these negotiations. Whims mattered then as they do now.
Today, that rules-based order is strained by complex supply chains, industrial subsidies, and the rise of state capitalism. With its dispute settlement mechanism in shambles, the WTO has lost its functional credibility. We are witnessing the “trilemma” articulated by Dani Rodrik: Deep globalisation, democratic politics, and national sovereignty cannot be simultaneously maximised. In this vacuum, FTAs have displaced multilateral ambition. Jagdish Bhagwati’s critique of the “spaghetti bowl” of overlapping rules remains valid, and Paul Krugman correctly cautions against viewing trade deals as universal remedies. Yet, these arrangements deliver the predictability that markets crave.
India’s evolution mirrors this realism. Following the 1991 crisis, trade liberalisation became the first ingredient of India’s response. Initiated by a Congress government, these reforms dismantled extreme insulation. Fears of deindustrialisation proved baseless; Indian industry adapted and emerged globally competitive. Having come of age, India can no longer prosper behind walls of excessive protection.
Our current choices reflect a sophisticated understanding of strategic autonomy. It is not a purist doctrine but a practical instrument shaped by cost-benefit calculations. Access to American technology, capital, and markets have long-term value. Cooperation with the US and the EU strengthens domestic economic and defence capabilities. Diversifying external partnerships enhances India’s strategic leverage, becoming a more consequential partner, better insulated against future uncertainties.
Crucially, the new India-US interim arrangement does not leave us harshly exposed. Agriculture remains a vital political and social anchor; providing livelihoods for 45 per cent of our population despite contributing only 18 per cent to GDP. Diversification into value-added agro-activities reduces overload and enhances incomes in the farming sector. Interestingly, Bangladesh’s “free access” to the US came at the cost of exposing sensitive domestic agricultural sectors to American scale and subsidies.
The India-US interim arrangement, alongside our successful negotiations with the EU, must be viewed through this lens of calibrated market access. The US agreement signals an ambition for trade and procurement flows approaching $500 billion over five years. In 2024-25, India exported $86.5 billion in merchandise to the US; 20 per cent of our total exports. Until recently, nearly $41 billion of those exports faced reciprocal tariffs as high as 50 per cent. We are not reducing tariffs to zero. We are pursuing a balanced outcome that protects our industrial base while securing zero-duty access for high-margin sectors where India dominates, such as generic pharmaceuticals, gems and diamonds, and aircraft parts. While our reciprocal rate stands at a balanced 18 per cent, other exporters face significantly higher barriers: China at 35 per cent, Vietnam at 20 per cent and ASEAN nations at 19 per cent. This is neither a total victory nor a debilitating loss. In complex trade negotiations, unlike the ABBA song “The winner takes it all, the loser must fall”, there are no absolute winners or losers.
Without this interim arrangement, India would face elevated tariffs, a widening competitiveness gap, and hemorrhaging of foreign investment. Such outward capital flight puts continuing pressure on exchange rates and currency management, making reserves increasingly vulnerable. Further, avoiding the 25 per cent tariff linked to Russia-related measures carries immense signalling value. The certainty and openness of India’s future support greater investor confidence and greater US investment flows. Judicial reforms, Bilateral investment protection treaties, and considering credible arbitration frameworks such as the Abu Dhabi Global Market could further fortify both investment flows and investor comfort.
Trade negotiations are rarely one-sided and must be judged within a long-term geopolitical frame. The world is adjusting to US power politics, but India’s task is precise: Securing market access and investment amid strategic churn.
A successful negotiation is often said to leave all sides equally dissatisfied. If this agreement raises exports and deepens technical-industrial capability during a disorderly global transition, it is a substantial achievement. It is ironic that a momentous mindset shift is met with prevarication. India is mature enough to seek purposeful engagement with a credible place in the global value added chain. What could have been a moment missed has become a moment seized.
The writer is president, Institute of Economic Growth, and was chairman, Fifteenth Finance Commission
