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India's Position of Strength in Recent Trade Agreements

PM Modi emphasizes the importance of FTAs in boosting market access for Indian MSMEs while urging private sector engagement.
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Gopi
••6 mins read
India positions itself for global competitiveness through new FTAs, record defence allocation, capital expenditure push, and AI-led growth strategy
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1. India’s Recent Trade Agreements: Strategic Economic Positioning

India has recently entered into multiple trade agreements, including with the European Union and the United States, which the Prime Minister described as being negotiated “from a position of strength.” These agreements aim to expand global market access for Indian manufacturing and services.

The government has presented these FTAs as part of a broader strategy to integrate India into global value chains (GVCs), diversify export destinations, and enhance the country’s credibility as a stable and predictable investment destination. Political stability and predictability were highlighted as factors restoring investor confidence.

The agreements also come amid domestic political debate, with concerns raised about their terms. However, the government frames them as long-term structural interventions rather than short-term trade concessions.

“Trade competitiveness is not only about tariffs. It is about liquidity, certification, technology adoption and compliance with global standards.” — Prime Minister Narendra Modi

Trade agreements in the current global order are instruments of strategic economic alignment. If India fails to integrate effectively, it risks exclusion from global supply chains, reduced export competitiveness, and slower industrial transformation.

Implications:

  • Greater access to EU and US markets
  • Strengthening India’s global economic positioning
  • Increased investor confidence due to policy stability
  • Political economy debate over domestic sectoral impact

GS Linkages:

  • GS2: India and bilateral trade agreements
  • GS3: External sector, export-led growth, industrial policy
  • Essay: Globalisation and self-reliance

2. Beyond Tariffs: Structural Trade Competitiveness

The Prime Minister emphasised that modern trade competitiveness extends beyond tariff reductions. It includes liquidity access, certification standards, technology adoption, and compliance with global norms.

The FTAs are designed not only to reduce tariff barriers but also to address non-tariff barriers (NTBs), which often pose greater obstacles to exports. This reflects a shift from traditional trade diplomacy to regulatory harmonisation and standards integration.

By targeting sectors such as textiles, leather, processed food, engineering goods, chemicals, handicrafts, and gems and jewellery, the government is aligning trade policy with labour-intensive and MSME-dominated industries.

In a global economy driven by standards and supply chain integration, tariff reductions alone are insufficient. Failure to upgrade regulatory, technological, and quality ecosystems could neutralise the benefits of FTAs.

Key Focus Areas:

  • Reduction of non-tariff barriers
  • Certification and global compliance standards
  • Technology adoption
  • Liquidity support

Sectors Highlighted:

  • Textiles
  • Leather
  • Processed food
  • Engineering goods
  • Chemicals
  • Handicrafts
  • Gems and jewellery

GS Linkages:

  • GS3: MSME competitiveness, industrial policy
  • Prelims: Difference between tariff and non-tariff barriers

3. MSMEs at the Centre of Global Integration

The government has placed Micro, Small and Medium Enterprises (MSMEs) at the centre of India’s trade integration strategy. MSMEs are expected to transition from peripheral suppliers to globally integrated, export-oriented enterprises.

This aligns with the “Zero Defect, Zero Effect” approach—ensuring quality manufacturing with minimal environmental impact. It reflects an effort to combine export promotion with sustainability.

The emphasis on youth, start-ups, and MSMEs indicates a structural transformation goal: converting domestic production networks into globally competitive value chain participants.

MSMEs form the backbone of employment generation in India. Without their technological and quality upgradation, trade agreements may disproportionately benefit large firms, widening structural inequalities.

Expected Outcomes:

  • Export expansion
  • Employment generation
  • Integration into global value chains
  • Technological upgrading

Challenges :

  • Compliance costs
  • Access to technology
  • Standard certification barriers
  • Financial constraints

GS Linkages:

  • GS3: MSMEs, employment, manufacturing competitiveness
  • GS2: Policy support architecture

4. Budget 2026–27: Capital Expenditure and Structural Transformation

The Prime Minister described the Union Budget 2026–27 as a “we are ready” moment rather than a compulsion-driven response. The Budget prioritises capital expenditure and infrastructure investment.

This reflects a supply-side growth strategy aimed at strengthening productive capacity before external demand shocks emerge. The focus is on systemic transformation rather than incremental reform.

Capital expenditure is expected to crowd in private investment by improving logistics, reducing transaction costs, and enhancing industrial productivity.

Infrastructure-led growth improves long-term potential output. If public capex does not crowd in private investment, fiscal expansion risks limited multiplier effects.

Reform Priorities for the Next Decade:

  • Continued structural reforms
  • Deepening innovation
  • Simplification of governance

GS Linkages:

  • GS3: Fiscal policy, infrastructure, growth strategy
  • GS2: Governance simplification and regulatory reforms

5. Defence Modernisation and Strategic Preparedness

The Prime Minister linked recent defence reforms and expenditure increases to lessons from Operation Sindoor against Pakistan, while emphasising continuous preparedness.

A record allocation of ₹7.85 lakh crore has been made to defence in the 2026–27 Budget:

  • 15% higher than the previous budget
  • Largest allocation to any ministry/department

This underscores India’s approach of sustained defence modernisation rather than reactive spending.

In a volatile regional security environment, sustained defence preparedness enhances deterrence credibility. However, high defence expenditure must be balanced with fiscal sustainability and developmental priorities.

Implications:

  • Strengthening national security
  • Modernisation of armed forces
  • Reinforcement of strategic autonomy

GS Linkages:

  • GS3: Defence modernisation
  • GS2: India-Pakistan relations
  • IR: Security architecture in South Asia

6. AI, Data Infrastructure and Emerging Technologies

On the eve of the Global AI Summit in New Delhi, the Prime Minister highlighted tax incentives aimed at reducing the cost of building advanced data infrastructure and positioning India as a competitive destination for data storage and AI development.

The strategy aims to:

  • Accelerate private investment in AI
  • Reduce infrastructure costs
  • Generate large-scale employment
  • Attract global data flows

The statement “We invite the whole world’s data to reside in India” reflects India’s ambition to become a data and digital infrastructure hub.

In the digital economy, control over data infrastructure translates into economic and geopolitical influence. Failure to build AI capabilities may limit India’s role in next-generation growth sectors.

Expected Benefits:

  • Job creation
  • Increased FDI in digital infrastructure
  • Strengthening innovation ecosystem
  • Global positioning in AI governance

GS Linkages:

  • GS3: Emerging technologies, AI, digital economy
  • GS2: Data governance and regulation
  • IR: Global technology competition

Conclusion

India’s recent trade agreements, capital expenditure push, defence modernisation, and AI-focused incentives reflect a coordinated strategy aimed at long-term structural transformation. The approach combines external integration, domestic capacity building, and strategic preparedness.

The effectiveness of this framework will depend on MSME upgradation, private sector responsiveness, fiscal sustainability, and regulatory simplification. If implemented cohesively, these measures could strengthen India’s transition toward a developed economy with enhanced global competitiveness and strategic autonomy.

Quick Q&A

Everything you need to know

Entering trade agreements from a “position of strength” implies that India negotiated its Free Trade Agreements (FTAs) with improved macroeconomic fundamentals, political stability, and enhanced global credibility. Unlike earlier phases where negotiations remained inconclusive, the present context includes stronger foreign exchange reserves, robust GDP growth, and expanded digital and physical infrastructure. These factors increase bargaining capacity and reduce vulnerability to external pressure.

The statement also reflects confidence in India’s manufacturing base, services sector, and MSME ecosystem. With initiatives such as Production-Linked Incentive (PLI) schemes, logistics upgrades, and digital public infrastructure, India has enhanced its export readiness. This allows India to pursue market access while safeguarding domestic interests.

Strategically, negotiating from strength means aligning trade policy with long-term national goals — such as becoming a developed economy — rather than entering agreements out of compulsion. It signals a shift from defensive trade diplomacy to proactive global economic integration.

The emphasis that trade competitiveness is not only about tariffs highlights the growing importance of non-tariff factors in global trade. In modern supply chains, issues such as certification standards, technological capabilities, liquidity access, logistics efficiency, and regulatory compliance determine market access as much as tariff reductions.

For example, Indian MSMEs exporting textiles or processed food must meet stringent EU quality and sustainability standards. Without technological upgrades and streamlined certification processes, tariff concessions alone cannot guarantee export success. Thus, FTAs are designed to reduce non-tariff barriers and create an enabling ecosystem.

The broader implication is that trade policy must be integrated with domestic reforms. Infrastructure investment, digitalisation, and governance simplification become essential complements to FTAs. This holistic approach reflects a shift from narrow tariff diplomacy to comprehensive competitiveness strategy.

MSMEs are positioned as the backbone of India’s export-led growth strategy. By centring MSMEs in FTAs, the government aims to integrate small enterprises into global value chains in sectors such as textiles, engineering goods, handicrafts, and gems and jewellery. This can generate employment, enhance technology adoption, and diversify exports.

However, challenges persist. MSMEs often face constraints in access to affordable credit, advanced technology, and compliance with international standards. Competing with large multinational firms requires scale and efficiency improvements. Without adequate capacity-building and market intelligence support, FTAs could expose weaker firms to intense competition.

Therefore, while opportunities are significant — including expanded market access and participation in global supply chains — policy support must continue in areas like digitalisation, skilling, and quality certification. The success of FTAs will depend on whether MSMEs transition from peripheral suppliers to globally competitive enterprises.

Higher capital expenditure (capex) enhances infrastructure such as roads, ports, railways, logistics parks, and digital connectivity. Efficient infrastructure reduces transaction costs, improves supply chain reliability, and increases export competitiveness. For instance, faster port clearance and improved freight corridors directly benefit export-oriented industries.

Capex also stimulates private investment by creating demand multipliers. When the government invests in physical and digital infrastructure, it lowers operational uncertainties and encourages the private sector to expand capacity. This synergy aligns with the Prime Minister’s call for private sector participation in the next phase of transformation.

Thus, infrastructure-led growth is not merely domestic development; it is a strategic enabler for global trade integration. It reflects the transition from incremental reforms to systemic transformation aimed at achieving developed nation status.

India’s invitation for global data to “reside in India” represents a strategic attempt to position itself as a global data and AI infrastructure hub. Tax incentives in the Budget aim to lower the cost of establishing advanced data centres and computing facilities. Hosting the global AI Summit further signals India’s ambition to shape emerging technology governance from the Global South.

This approach leverages India’s strengths — a vast digital user base, skilled IT workforce, and expanding renewable energy capacity for data centres. It also aligns with broader trade agreements by attracting investment in high-value sectors beyond traditional manufacturing.

However, challenges include ensuring data protection, cybersecurity resilience, and regulatory clarity. If managed effectively, this strategy could generate employment, attract foreign direct investment, and integrate India into next-generation global value chains.

The increase in defence expenditure — reaching ₹7.85 lakh crore — reflects the principle that economic growth and national security are interlinked. A secure geopolitical environment provides stability for trade, investment, and industrial expansion. Lessons from operations such as Operation Sindoor underscore the need for continuous preparedness.

Defence modernisation also stimulates domestic manufacturing under initiatives like ‘Make in India’ and Atmanirbhar Bharat. Investments in defence technology create spillover effects in electronics, aerospace, and advanced materials sectors.

Thus, higher defence allocation is not merely reactive but strategic. It complements trade agreements by ensuring that India’s rise as a global economic actor is supported by credible security capabilities, reinforcing both deterrence and investor confidence.

Attribution

Original content sources and authors

TH
The Hindu Bureau
TH
The Hindu
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