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.
It asks 2 things — 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 · India's exports hit a record USD 824.9 billion in 2024-25 (RBI), yet with the WTO Appellate Body defunct since December 2019 and tariffs rising, trade now runs on bargaining power, not 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 · Fragmentation is also an opening: selective deals, competitiveness at home and steady advocacy of a rules-based system can carry India to the Foreign Trade Policy 2023 goal of USD 2 trillion exports by 2030.
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”
- RBI data: India's total exports reached an all-time high of USD 824.9 billion in 2024-25.Akashvani News (Prasar Bharati), 2 May 2025 — India's total exports rise 6 per cent to all-time high of $824.9 billion: RBI ↗“India’s total exports have touched an all-time high of 824.9 billion dollars in the financial year 2024-25, as per the latest data released by the Reserve Bank of India”
- The India–UK trade deal (CETA) was signed on 24 July 2025.UK Parliament, written ministerial statement by the Secretary of State for Business and Trade ↗“On 24 July 2025, the Government signed the UK-India trade deal.”
- Foreign Trade Policy 2023 sets the goal of USD 2 trillion exports by 2030.PIB, 31 March 2023 — Foreign Trade Policy 2023 announced ↗“FTP seeks to take India's exports to 2 trillion dollars by 2030: Sh Goyal”
Question: UPSC's CS (Main) 2025, GS Paper III — paper ↗. Approach: Minimalist IAS, checked 3 Oct 2026 (how we verify) — UPSC publishes no model answers. ·
Model answer· 224words · Minimalist IAS
India's exports hit a record USD 824.9 billion in 2024-25 (RBI), yet with the WTO Appellate Body defunct since December 2019 and tariffs rising, trade now runs on bargaining power, not common rules.
Challenges before the Indian economy
- 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 dispute settlement, India bargains one-to-one with larger economies and loses the leverage rules gave smaller players.
- Value-chain shifts: reshoring, 'friend-shoring', green subsidies and the EU's CBAM on steel and aluminium penalise Indian producers.
- Bilateral pressure: demands on agriculture, dairy, data flows, IPR and procurement squeeze farmers and policy space.
How these challenges can be met
- Deals on India's terms: UAE CEPA, Australia ECTA, the India–UK CETA (signed 24 July 2025) and the EFTA TEPA (in force 1 October 2025, USD 100 billion investment objective).
- Keep rules alive: a WTO-reform coalition with the Global South on dispute settlement and food security, and diversified markets.
- Compete at home: PM Gati Shakti logistics, PLI with lower input tariffs, simpler compliance, export credit for MSMEs and the domestic market as buffer.
Fragmentation is also an opening: selective deals, competitiveness at home and steady advocacy of a rules-based system can carry India to the Foreign Trade Policy 2023 goal of USD 2 trillion exports by 2030.
Prepared by Minimalist IAS to the answer standard of Shivam Singh (mentor, 7 years) · facts checked against official sources (how we verify) · updated 3 Oct 2026. UPSC publishes no model answers: compare your structure and coverage with this, then write your own.
