"Global tariff surge and conflicts demand India's industrial policy rethink"
New Economic Policy (1991)
India's reform package of liberalisation, privatisation, and globalisation launched after a balance-of-payments crisis.
Strategic industrial policy
deliberate state intervention (subsidies, tariffs, procurement) to build capabilities in sectors critical for national security or long-term competitiveness.
India's New Economic Policy of 1991 marked a decisive break from the import-substitution, licence-raj model that had governed the economy since independence. Triggered by a balance-of-payments crisis, the reforms — liberalisation, privatisation, and globalisation — dismantled industrial licensing, reduced tariff barriers, and opened the economy to foreign direct investment. The Foreign Trade (Development and Regulation) Act, 1992 provided the statutory framework for India's new trade orientation, and the Directorate General of Foreign Trade (DGFT) became the nodal body for trade policy administration. India's accession to the World Trade Organization (WTO) in 1995 further embedded the country in a rules-based multilateral trading order premised on non-discrimination, tariff bindings, and the progressive reduction of trade barriers.
For three decades, this framework delivered significant gains: export diversification into IT services and pharmaceuticals, integration into global value chains, and sustained GDP growth. Yet structural vulnerabilities persisted — a widening trade deficit (reaching approximately $120 billion overall, with the bilateral deficit with China alone touching $116 billion), deep import dependence on electronics, capital goods, and active pharmaceutical ingredients, and a technology gap that tariff reductions alone could not bridge. India's export basket remained concentrated in labour-intensive and services sectors, while high-value manufacturing — semiconductors, precision engineering, advanced defence systems — remained underdeveloped.
The classical case for free trade rests on comparative advantage: countries specialise in what they produce most efficiently, and global welfare rises through exchange. The WTO's Most Favoured Nation (MFN) principle and tariff binding commitments operationalise this logic by constraining unilateral protectionism. However, the post-2016 global trading environment has seen a systematic erosion of these norms. Major economies have deployed tariffs as instruments of geopolitical leverage — the US-China trade war, US Section 232 tariffs on steel and aluminium, and the broader weaponisation of supply chains have demonstrated that trade is no longer purely an economic transaction but a strategic one.
This context reframes the debate around strategic industrial policy — the deliberate use of subsidies, tariffs, public procurement, and domestic content requirements to build capabilities in sectors deemed critical for national security or long-term competitiveness. The Production Linked Incentive (PLI) scheme, launched across fourteen sectors including semiconductors, pharmaceuticals, and electronics, represents India's most significant post-liberalisation experiment with strategic industrial policy. …
With reference to 'Trade-Related Investment Measures' (TRIMS), which of the following statements is/are correct?
1.Quantitative restrictions on imports by foreign investors are prohibited.
2.They apply to investment measures related to trade in both goods and services.
3.They are not concerned with the regulation of foreign investment.
Select the correct answer using the code given below:
Consider the following statements:
The effect of devaluation of a currency is that it necessarily
1.improves the competitiveness of the domestic exports in the foreign markets
2.increases the foreign value of domestic currency
3.improves the trade balance
Which of the above statements is/are correct?
With reference to India's trade policy framework, consider the following statements:
1.The Directorate General of Foreign Trade (DGFT) administers India's trade policy under the Foreign Trade (Development and Regulation) Act, 1992.
2.India's bilateral trade deficit with China is larger than India's overall trade deficit with the world.
3.Trade-Related Investment Measures (TRIMs) under the WTO apply to investment measures affecting trade in both goods and services.
Which of the statements given above is/are correct?
Consider the following statements about India's Production Linked Incentive (PLI) scheme:
1.It provides output-linked financial incentives to manufacturers, making it broadly consistent with WTO subsidy disciplines that permit production subsidies not tied to export performance.
2.It covers fourteen sectors including semiconductors, mobile phones, and pharmaceuticals.
3.Local-content requirements under PLI are explicitly mandated for all sectors covered by the scheme.
Which of the statements given above is/are correct?
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