For much of the past decade, India projected growing confidence in its trade diplomacy.
A vast domestic market, demographic scale, and rising manufacturing ambition were meant to translate into negotiating power. For a time, they did.
Under the United States’ Generalized System of Preferences (GSP), more than 3,500 Indian products entered the American market duty-free, supporting employment across textiles, engineering goods, leather, gems and jewelry, and small-scale manufacturing. In 2018, India exported nearly $6.3 billion worth of goods under this framework.
That leverage evaporated in 2019, when Washington withdrew India’s GSP status, citing restricted access to Indian markets for American dairy, medical devices, and digital services. The loss was not inevitable. It reflected a negotiating posture that overestimated India’s strategic indispensability and underestimated the economic costs of rigidity.
Five years later, India has yet to regain what it once had-yet New Delhi now celebrates what it calls a “historic reset” in bilateral trade relations.
The substance of that reset tells a different story. The United States has agreed to reduce its reciprocal tariff on Indian exports from 25 percent to 18 percent. It is a concession-but a modest one, and far inferior to the zero-duty access India previously enjoyed.
In return, India has pledged market-opening concessions across agriculture, medical devices, digital trade, and energy, while gradually unwinding discounted Russian crude imports that had helped stabilize domestic fuel prices since 2022.
The diplomatic optics are upbeat. The economic arithmetic is less forgiving.
For India’s labor-intensive industries- precisely the sectors that benefited most from GSP, the consequences are already visible. Export margins remain compressed, order books thinner, and investment hesitant. MSMEs, which account for nearly 45 percent of manufacturing employment, face rising costs and reduced pricing power.
For households, the impact is more direct. A Mumbai auto-rickshaw driver or a Bihar shopkeeper may not track tariff schedules, but they feel the downstream effects: higher fuel prices as discounted Russian oil recedes, costlier logistics, and inflation that steadily erodes fragile disposable incomes.
Any marginal savings from cheaper imported electronics or consumer goods are quickly overwhelmed by rising food, transport, and energy costs.
The European front offers no easier comfort. Brussels suspended India’s GSP benefits in 2026, accelerating negotiations for a comprehensive EU–India free trade agreement.
The promise is considerable: expanded access for pharmaceuticals, IT services, chemicals, and advanced manufacturing. But the concessions demanded in return- particularly in automobiles, agriculture, data flows, and government procurement-risk exposing vulnerable domestic sectors before adequate competitiveness and adjustment mechanisms are in place.
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Liberalization itself is not the threat. Asymmetry is. When market opening races ahead of industrial readiness, inequality deepens, regional imbalances widen, and political resistance hardens.
These pressures are unfolding against a delicate macroeconomic backdrop. Customs revenue, historically contributing between 7 and 10 percent of central government tax receipts will inevitably decline as tariffs fall.
Simultaneously, the shift away from discounted Russian crude increases the import bill, strains the current account, and narrows fiscal room for infrastructure, social protection, and industrial policy. With capital expenditure already stretched and welfare demands rising, the trade-offs are becoming more acute. Trade diplomacy, once framed as an instrument of growth, is fast becoming a source of fiscal compression.
None of this argues for retreat from globalization. India stands to gain enormously from deeper integration into advanced economy supply chains, especially amid US-China decoupling and the global reconfiguration of manufacturing networks. But successful integration requires strategic sequencing: domestic capability before market exposure; competitiveness before concession; reform before reciprocity.
South Korea, Taiwan, and later Vietnam internalized this lesson. India, by contrast, risks compressing multiple transitions-industrialization, liberalization, and geopolitical realignment- into a single destabilizing leap.
The deeper question is one of leverage. In the late 2010s, India negotiated from a position anchored in preferential market access, demographic promise, and geopolitical alignment. Today, it is conceding more than it secures: lowering barriers for partners who have raised theirs, narrowing its autonomy in energy sourcing, and celebrating tariff reductions that still leave exporters structurally disadvantaged.
This is not strategic liberalization. It is leverage erosion repackaged as diplomatic success.
Geopolitically, the stakes are even higher. As Washington reconfigures Indo-Pacific supply chains and Europe seeks to de-risk from China, India occupies a pivotal position. But strategic centrality does not automatically translate into economic advantage.
Without disciplined negotiation, geopolitical alignment can become a substitute for — rather than a source of — commercial leverage. History offers repeated caution: nations that conflate strategic partnership with economic concession rarely capture durable gains.
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India’s long-term interests demand a different architecture. Trade agreements should reinforce domestic competitiveness, not pre-empt it. They should deepen technological capability, not hollow out manufacturing potential.
And they must embed credible safeguards — worker retraining, industrial upgrading, fiscal buffers — before exposure to full global competition. The objective is not insulation, but resilience.
That requires institutional reform at home and strategic coherence abroad. Negotiations must be anchored in clear industrial priorities: electronics, pharmaceuticals, precision engineering, green energy, and advanced materials. Concessions should be calibrated against measurable domestic capability benchmarks, not geopolitical goodwill. And trade diplomacy must integrate seamlessly with energy security, technology policy, and labor transition planning.
Trade agreements, at their best, expand sovereignty by enlarging national choice. At their worst, they narrow it by constraining domestic policy space.
India today stands uncomfortably close to the latter. Reclaiming leverage will require more than celebratory headlines and diplomatic theater. It will demand discipline, patience, and a strategic clarity that subordinates short-term optics to long-term national advantage.
Only then can India truly convert scale into strength, and ambition into durable prosperity.