What are the challenges before the Indian economy when the world is moving away from free trade and multilateralism to protectionism and bilateralism? How can these challenges be met?
Approach · directive: “what / how”
What it asks · Identify how tariff wars, weakened WTO rules and power-based bilateral bargaining hurt India’s exports, investment and policy space — then give a practical response.
The question has 2 parts — answer each
- Identify the challenges to the Indian economy as the world shifts from free trade and multilateralism to protectionism and bilateralism
- Explain how these challenges can be met — abroad and at home
Open with · With the WTO’s Appellate Body non-functional since December 2019 and major economies raising tariffs, trade is increasingly governed by bargaining power rather than common rules.
Cover
- Export shocks: tariffs on labour-intensive goods (textiles, gems, leather, shrimp) hurt MSMEs and jobs; steep US tariffs in 2025 showed the exposure.
- Weaker rules: without effective WTO dispute settlement, developing economies negotiate one-on-one with larger powers, reducing India’s leverage.
- Value-chain shifts: reshoring, ‘friend-shoring’, green subsidies and carbon border taxes (EU CBAM on steel, aluminium) can bypass or penalise Indian producers.
- Bilateral pressure: demands on agriculture, dairy, data flows, IPR and government procurement touch farmers’ livelihoods and policy space.
- Macro risks: slower global demand, volatile capital flows and rupee pressure; curbs on services trade and mobility of professionals.
- Response abroad: well-negotiated deals on India’s terms (UAE CEPA, Australia ECTA, EFTA TEPA, UK CETA), market diversification, a WTO-reform coalition with the Global South.
- Response at home: logistics (PM Gati Shakti), PLI and lower input tariffs, ease of doing business, export credit for MSMEs, and stronger domestic demand.
Close with · Treat fragmentation as an opening: pair selective bilateral deals and domestic competitiveness with steady advocacy for a rules-based multilateral system.
Add value (verified)
- The India–EFTA TEPA, in force from 1 October 2025, ties market access to an investment objective of USD 100 billion over 15 years — a template for trade deals that bring capital, not only tariff cuts. PIB, Ministry of Commerce & Industry — India–EFTA TEPA comes into force (1 October 2025) ↗“The agreement includes an investment objective of USD 100 billion over 15 years and facilitation of creating one million direct jobs in India”
Question: UPSC's CS (Main) 2025, GS Paper III — paper ↗. Approach: Minimalist IAS, checked 30 Sept 2026 (how we verify) — UPSC publishes no model answers. ·
Model answer · 227 words (UPSC limit 150) · Minimalist IAS
With the WTO's Appellate Body non-functional since December 2019 and major economies raising tariffs, trade is increasingly settled by bargaining power rather than common rules.
Challenges for India
- Export shocks: tariffs on labour-intensive exports — textiles, gems, leather, shrimp — hit MSMEs and jobs, as the steep US tariffs of 2025 showed.
- Weaker rules: without WTO dispute settlement, India must bargain one-to-one with larger economies, losing the leverage rules gave smaller players.
- Value-chain shifts: reshoring, 'friend-shoring', green subsidies and the EU's carbon border tax (CBAM) on steel and aluminium bypass or penalise Indian producers.
- Bilateral pressure: demands on agriculture, dairy, data flows, IPR and government procurement squeeze farmers' livelihoods and policy space.
- Macro risks: slower global demand, volatile capital flows, rupee pressure and curbs on services exports and professional mobility.
Meeting them
- Deals on India's terms: UAE CEPA, Australia ECTA, UK CETA and the EFTA TEPA (in force from 1 October 2025, with a USD 100 billion investment objective), plus diversified markets.
- Keep the rules alive: a WTO-reform coalition with the Global South on dispute settlement and food security.
- Compete at home: PM Gati Shakti logistics, PLI with lower input tariffs, simpler compliance, export credit for MSMEs and a deep domestic market as buffer.
Fragmentation is also an opening: selective deals and domestic competitiveness, with steady advocacy for a rules-based system, can make India a preferred partner.
Written by Minimalist IAS from facts checked at source (how we verify) — a little fuller than exam length, so every part of the question is covered; in the hall, keep the structure and trim the detail. UPSC publishes no model answers: compare your structure and coverage with this, then write your own.