India's Potential Opportunities to Adapt and Thrive

In a changing global trade landscape, India, a robust economy, finds itself attracting attention, particularly its trade surplus with the United States. This situation, however, is not without challenges.

India is leaning into strategic partnerships, with a shift towards Europe in defence and aviation sectors. The world recognises India's significance, and its digital stack provides a strong platform for global relevance.

The US, with an economy standing at a staggering $30 trillion, is a consumption-driven economy, boasting $21 trillion of consumption power. This economic might has created the political ground for economic nationalism, resulting in tariffs and the argument that if a country is losing jobs, it should stop others from sending them goods and workers.

India exports $87 billion worth of goods to the US, making it the largest export destination for India, accounting for 18% of outbound trade. The top categories of Indian exports include pharma, gems, and electrical machinery. However, the US is using its leverage through tariffs, particularly in these areas, where US consumption relies on Indian brands, products, and services.

India, though, is not without resources. It has the luxury to choose from a variety of industries and countries in response to trade changes. The government can think of short-term support for Micro, Small, and Medium Enterprises (MSMEs), and making MSMEs competitive will help in the long-term.

Defence, a $3 trillion industry growing at 8% a year, is an attractive industry for India, which is a big defence spender and the fourth-largest defence spender in the world. The focus has shifted to building locally and partnering with European suppliers in the defence industry.

Global trade is being reshaped by four factors: defence, immigration, nationalism, and tariffs (DINT), which are working together to reverse decades of globalisation. This reshaping is not without its complexities. For instance, a 25% tariff can wipe out half the margin of a $100 million business with 20% EBITDA, and at 50%, the business may cease to be viable unless it hikes prices, which isn't always an option.

Manufacturing, following the China +1 narrative, needs to find alternative destinations. However, some sectors like pharma and IT services are relatively insulated from the trade changes.

Trade alliances like BRICS will need to be reimagined. India will continue to engage with the Middle East, Russia, Japan, and China, utilising its soft power and influence in the current trade environment.

Immigration has become a rallying cry in elections, tied to jobs, wages, and national identity. When manufacturing jobs left the West, the blame didn't go to automation or productivity gaps, but to countries like China, India, and Vietnam. This could potentially affect students pursuing education abroad, who may face increased friction.

A reverse brain drain could benefit domestic academia and industry, as the focus shifts to building locally. Taxing American tech companies operating in India could hurt Indian consumers and access to digital services.

In conclusion, India, with its robust economy, strategic partnerships, and digital stack, is well-positioned to navigate the complexities of the changing global trade landscape. The government's restraint in implementing tariffs has been beneficial, and a focus on supporting MSMEs and diversifying trade partners will be key to India's success.