A paradigm shift: on India and its trade relations

The Hindu

8 hours ago

On August 11, the central government implored India's seafood industry, that provides livelihoods to about 28 million people, to 'bravely face' the U.S.'s tariffs of 25% that kicked in on August 7 and which could be raised to 50% on August 27, contingent upon the outcome of trade negotiations. On Wednesday, highly placed sources in the Commerce and Finance Ministries told The Hindu that the government is exploring 'tweaking' the Export Promotion Mission (EPM), that was announced in the 2025 Union Budget, with an outlay of ₹2,250 crore for the current fiscal year. The EPM, a multi-Ministry project to drive access to cheaper export credit, overcome non-trade barriers and insure payments from overseas buyers, focuses on India's micro, small and medium enterprises (MSME). Initially meant to be driven by the Ministries of Commerce, MSME and Finance, discussions are on to include the Textiles and Fisheries Ministries. These two industries, which collectively support about 135 million Indians, form among the largest segment of MSMEs that are likely to face the most impact due to the sanctions. The U.S. typically accounts for roughly a third of India's apparel and seafood exports annually.
The government's imploration to also diversify into other markets is a tacit admission that the Bilateral Trade Agreement negotiations with the U.S. are deadlocked, and that the personal equations between Prime Minister Narendra Modi and U.S President Donald Trump have not translated into a win for either side. Bilateral relations have arguably hit a level lower than during the Cold War, as the two nations were not as enmeshed as they are now, economically, culturally and militarily. Trade and service routes and supply chains take decades to build and undoing them overnight is not possible. This has been clear from the European Union's reliance on Russian oil and the global dependence on rare earth elements from China. While consultations have been ongoing between the government and MSME sector stakeholders ever since Mr. Trump announced 'reciprocal tariffs' in April, there is a chorus now for drastic governmental intervention to safeguard the backbone of the economy — it contributes nearly half (45.79% in FY25) of goods exports and employs over 28 crore people. The fisheries sector has sought a 240-day moratorium on pre- and post-shipment credit repayment, while the textiles, apparel and gem and jewellery sectors want interest subvention. The government has, however, ruled out direct subsidies. But unprecedented challenges require novel responses. The government must include in its arsenal a drastic refashioning of near-term trade ties with neighbours, in particular, China, which it had ignored in the hope that the assiduous cultivation of ties with Washington would pay off.