India began 2026 with a burst of diplomatic theater that captured global attention.
On Jan. 27, Indian Prime Minister Narendra Modi and European Commission President Ursula von der Leyen announced a sweeping India–European Union free-trade agreement, celebrated in Brussels as the “mother of all deals.” It promised deep tariff reductions, new investment channels, and sustainability commitments binding two major economies more tightly than ever before.
Less than a week later, President Donald Trump declared a bilateral pact with India that would roll back steep American tariffs and reset a strained economic relationship.
Two deals in six days. Two great powers competing for influence. And one emerging economy navigating a fractured world order.
For India, the question is not whether these agreements matter — they do — but whether they can finally alter the country’s stubbornly small footprint in global trade or merely add to a growing list of symbolic victories.
Since independence, India’s share of world merchandise exports has hovered between 1.7 and 2 percent. The economy has expanded from a postcolonial agrarian base into a nearly $4 trillion giant, yet its integration into global value chains remains strikingly limited. China, by contrast, now accounts for more than 14 percent of world exports.
Bilateral trade between India and China exceeds $150 billion, with a deficit of more than $110 billion. India imports electronics, machinery and chemicals at scale while exporting largely raw materials and low-value goods — a structural imbalance that has proved remarkably resistant to reform.
Beyond China, nearly half of India’s trade flows to regions stretching from the Gulf and Southeast Asia to Africa. These ties are diverse but shallow, reflecting an economy that competes on resilience rather than scale. Against this backdrop, the rapid succession of two major trade announcements appears less like a coherent strategy than a geopolitical crescendo — a projection of global stature amid intensifying domestic economic pressures.
Leading economists view this moment with cautious ambivalence.
Jagdish Bhagwati, whose critique of preferential trade agreements helped shape modern trade theory, famously warned of the “spaghetti bowl” effect: overlapping rules, complex compliance burdens, and trade diversion that favors politically preferred partners over the most efficient ones.
India’s recent proliferation of free-trade agreements — from Britain to the European Free Trade Association and Oman — has not meaningfully lifted its global trade share. The EU agreement’s sustainability mandates and phased tariff reductions risk adding new regulatory layers for small exporters already struggling with certification and standards.
Kaushik Basu has long cautioned against retaliatory tariff spirals and urged India to diversify its economic relationships. The new U.S. pact may ease bilateral tensions, but it also embeds expectations of large energy purchases and strategic alignments that could strain public finances and policy autonomy. Without broader integration with Europe, Canada, and East Asia, India risks being drawn into asymmetric bilateral dependencies at a time when the multilateral trading system is under acute stress.
READ more Column by Satish Jha (February 1, 2026)
Arvind Subramanian sees in these developments the possibility of a domino effect. Preferential access to the European market could pressure Washington to respond, lest American firms lose competitiveness. But he also warns that without deep domestic reforms — in logistics, tariffs, infrastructure, and private investment — the economic gains will remain limited. His estimate of a 0.3 to 0.5 percentage-point boost to annual GDP growth is meaningful, but far from transformative.
Raghuram Rajan has described the present moment as “an extremely dangerous time” for the global economy, marked by strategic fragmentation and rising economic nationalism. For India, he argues, trade agreements must serve as instruments of diversification rather than vulnerability. The U.S. tariffs imposed on India were never solely about Russian oil; they reflected broader geopolitical leverage. Tactical victories, he warns, should not be mistaken for strategic progress.
From a Global South perspective, Jayati Ghosh views both deals as deeply asymmetric. She argues that the U.S. agreement remains vague on agriculture and digital taxation, while the EU pact risks opening Indian markets to heavily subsidized European producers under regulatory regimes that could inhibit domestic innovation. For millions of small farmers and manufacturers, these risks are neither theoretical nor distant.
Despite their differences, these economists converge on a central conclusion: India cannot trade its way to prosperity without fundamentally restructuring its economy.
The country’s export profile remains narrow, dominated by services and low-value manufacturing. Industrial production has stagnated at roughly 13 to 15 percent of GDP for decades. Technology absorption remains uneven. China’s rise, by contrast, was powered by massive foreign investment, scale manufacturing, and relentless investments in research, logistics, and skills. India has yet to build comparable engines of transformation.
The agreements of early 2026 create opportunity — but only if they catalyze a strategic shift. India must treat trade not as diplomatic spectacle, but as a lever for technological and industrial upgrading.
READ more Column by Satish Jha (February 1, 2026)
A “tech-first trade” strategy would begin by re-anchoring India in multilateralism. New Delhi should reclaim leadership at the World Trade Organization, pushing for updated rules governing subsidies, digital flows, and supply-chain security. Bilateral agreements should prioritize technology transfer, joint ventures, and R&D collaboration over narrow tariff concessions. The EU’s sustainability provisions could become conduits for green-technology investment, while the U.S. pact could anchor cooperation in semiconductors, artificial intelligence, and advanced manufacturing rather than energy purchases alone.
Domestic reform must match this ambition. India needs large-scale “technology absorption funds” to help small and medium enterprises adopt advanced manufacturing systems. Production-linked incentives should be benchmarked against global performance standards, not domestic output targets. Logistics, ports, customs clearance, and financial access must be modernized at speed. And India must confront its China imbalance directly — through targeted export promotion, strategic value-addition mandates, and deeper supply-chain integration with Southeast Asia and Africa.
If trade policy can be aligned with technological upgrading, India’s global share could plausibly rise to 4 or even 5 percent by its centenary year of independence in 2047 — a shift that would transform both its economic standing and geopolitical leverage.
The alternative is familiar: celebrated agreements that generate modest gains while structural weaknesses persist.
The tale of two deals is not yet the story of India’s transformation. It is the opening chapter of a larger test — whether the country can use a moment of global fragmentation to build the capabilities that have eluded it for decades. In a fractured world, opportunity lies in the cracks. India must decide whether it will navigate them with strategic vision or with diplomatic spectacle.