Introduction
One of the biggest employers and exporters in India, the textile sector is now dealing with a new problem. Recently the US levied significant taxes on Indian textile and labour-intensive exports with some reaching 50%. In reaction, Indian exporters are shifting their focus to Europe and providing discounts in an effort to diversify their risk and keep orders.
India’s changing trade policy and its broader economic ramifications are encapsulated in this moment.
- Method of survival: Tariffs jeopardise the survival of exporters who rely significantly on U.S. buyers. India’s biggest commercial partner, Europe is becoming a lifeline. Nonetheless it requires more stringent adherence to labour and environmental regulations compelling Indian units to modernise.
- Global positioning: As trade negotiations between the United States and India resume in Washington, India has indicated that it is open to increase energy imports from the United States as a gesture of goodwill. Rebuilding confidence and lowering tariffs are the goals of the talks.
- Currency & markets: Because of the strength of the dollar and the uncertainty surrounding exports, the Indian rupee is still under pressure and is trading close to record lows. Despite their cautious optimism, equity markets are waiting for trade negotiations to provide clarification.
Possibilities and Hazards
Benefits
- Export base diversification: By focussing on Europe, Indian exporters can access alternative markets, lessen their reliance on the US and protect themselves from potential tariff shocks.
- Market for high-quality goods: India can redefine itself as a manufacturer of ethical, eco-friendly fashion, increasing value-added exports thanks to the EU’s desire for sustainable textiles.
- Leverage in trade diplomacy: By deepening its connections with both the United States and Europe, India can protect its interests in a fragmented trading order and strengthen its negotiating position in multilateral organisations such as the World Trade Organisation.
- Technology and investment inflows: Long-term growth in India could be facilitated by negotiations with the United States that open up investments in sophisticated manufacturing, digital trade and renewable energy.
Risks
- MSMEs’ compliance burden: Expensive EU certification requirements pertaining to chemicals, labour practices and carbon footprints may be difficult for small textile businesses to meet. They run the risk of losing out without assistance.
- Concessional trade-offs with the US: Washington might insist on changes to laws pertaining to delicate topics like data regulation, GM crops and pharmaceuticals. Such compromises can provoke political backlash at home.
- Macroeconomic volatility: The price advantage of exporters may be undermined by prolonged rupee weakening and high input prices (cotton, dyes, and electricity).
- Unequal benefits: While smaller businesses and regional clusters may be left behind, larger corporations may swiftly adapt resulting in a deepening of disparities within the export industry.
India’s susceptibility to external trade politics has been brought to light by the tariff shock. However it also presents an opportunity to rethink India’s export strategy, balancing diversity with European linkages, strengthening internal resilience and raising standards. This story serves as an excellent example for UPSC candidates of how domestic government, diplomacy and international trade policy interact to influence India’s economic future.
UPSC General Studies Paper Preparation
| Topic | |
| UPSC Syllabus | UPSC Free Notes |
| UPSC Optional Subjects | Khushhali Solanki (AIR 61, UPSC CSE 2023) |
Public Administration Optional Exam Preparation
Topic | |
About the Author: Jyoti Verma
