India & The New World

 

Doing Business in the New World

Deepak Razdan

20 April, 2025

India has advocated diplomacy and dialogue to solve any international crisis. There has been a significant change in the world situation lately. It is a completely transformed world now; a world that seeks no engagement without profit. It’s this New World that is India’s main challenge in its current foreign trade talks.

US President Donald Trump’s 4th March address to the Joint US Congress revived international boundaries, without any changes in geography. A New World took shape. America was now for America First. America had been ripped off for decades, plundered, looted by its trade partners, the US President said.

The US will now impose reciprocal tariffs and take in trillions and trillions of dollars to usher in the Golden Age of America, he announced. He promised to US citizens “We are going to create the highest quality of life, build the safest and wealthiest and healthiest and most vital communities anywhere in the world.”

America had rediscovered itself, and began a new exercise to define its friends and foes. A shocked Europe, like the rest of the world, began searching for its new identity. Post the Second World War, America was leader of the world; ready to help the war-ravaged Europe to emerge as a group of democratic nations, assured of security, and recovering as a centre of great economic activity again.

Europe was shaken out of its reverie. It had to now pay full for its security against any Russian threat. Mr Trump told the European members of the NATO (North Atlantic Treaty Organization) that they had not made their committed contribution to NATO security expenditure and must now do so.

The European Union (EU) was accused of placing tariff and non-tariff barriers to stall the entry of US goods in EU nations. Mr Trump imposed tariffs on EU products entering the US, just like he did it on the produce of other countries, including India, for unequal trade practices with the US.

First, it was a 10 per cent baseline tariff for all and then 25 per cent on steel, aluminium and auto sector. Later, a detailed chart came to give different levels of tariffs for different countries.

As the tariffs showed their effect, several countries approached the US Administration for talks and Mr Trump announced a 90-day pause for the whole world, except those countries which had dared to bring reciprocal tariffs, especially China which reached the US tariff chart’s top.

It is this disturbed world that India has to deal with for its trade agreements. Priorities have changed. The US wants normal tariffs which do not act as barriers to stop its products entering another country’s territory.

US says there should be no non-tariff barriers on flimsy grounds and access to a country should be free. India cannot put high tariff on US products that makes their sale impossible. Mr Trump mentioned India’s high tariffs on US products in his speech.

The US President accused the EU also of non-tariff barriers which had no valid grounds to stop the US products entering the EU market. The EU tariffs too were quite high. Only the United Kingdom had put just 10 per cent tariffs on US goods and therefore Mr Trump had only 10 per cent tariff for UK products.

More than the products, it is the tariffs and non-tariff barriers that are the talk of the town. In such a situation, India, a fast-developing but a developing country still, may not be able to get much concession from anywhere. While low tariffs on Indian products will be difficult to get, India will not be allowed to put heavy tariffs on other countries’ products also.

The tariff war covers all countries, whether the US or Germany, France or UK. Since every country wants to protect its interests, there will be limited flexibility available in any trade agreement. It is difficult to predict if some parts of an India-EU or an India-UK arrangement may not annoy the US. The UK is to be careful in its talks with the EU while courting the US for a trade pact.

If present relationships are unpredictable, India’s traditional relations with its trading partners can help. Bilateral talks give much scope for bilateral understanding and appreciation.

A particular issue of concern at present is the world security situation. The UK and the European Union support Ukraine in its war with Russia and have committed huge amounts of aid for defence purchases by Ukraine. The US is losing its patience in its talks with Russia and Ukraine to work out a ceasefire between the two countries. It is unlikely that attitudes of different countries towards security issues will not determine contours of economic agreements.

A healthy trend of increasing exports is important for India as India has a large trade deficit every year. India’s total exports during FY 2024-25 (April-March) are estimated at US $ 820.93 billion. The total imports during the same period are estimated at US $ 915.19 billion. This means a trade deficit of US $ 94.26 billion during 2024-25. India lost this money in trade with the world.

Among India’s 25 major trading partners during April, 2024-January, 2025, India had a trade surplus with US, UK, France, Italy, Bangladesh and Netherlands. While India gained Rs 2.51 lakh crore in trade with the US during this period, it lost Rs 7.03 lakh crore in trade with China. India’s share in global trade (inclusive of merchandise and services exports) is only 2.7 per cent.

India has been fortunate that Prime Minister Narendra Modi had talked to the US, the EU and France even before the tariff war came out in the open. India was already engaged in talks with several other countries for free trade agreements. India has a good track of diplomatic initiatives with a large number of countries. Personal relations matter and they can result in give and take on bilateral level.

India is currently in advanced stages of a Bilateral Trade Agreement (BAT) with the US. US Vice President J D Vance will pay an official visit to India from 21 to 24 April. He will be accompanied by senior members of the US Administration. This will be a timely opportunity to review the progress of the India-US trade pact. India is also in talks with the EU and the UK for separate trade agreements.

All countries are exploring partners other than the US for trade, as trade with the US is uncertain. Chinese President Xi Jinping was on a South-East Asia tour of Vietnam, Malaysia and Cambodia a few days back. Even before that the Indian Prime Minister had visited Thailand and Sri Lanka and is visiting Saudi Arabia next week. Indian Ministers are touring the US and the UK to complete the process of trade agreements.

Conclusion of good international trade agreements will help Indian students to go to countries of their choice for studies, whether it is the US or EU members. The agreements will create a suitable environment for Indian tourists also to resume their foreign tours. Most Western countries are at present discouraging migration from any foreign land.