India’s trade story is undergoing an important transition. It is no longer simply an economy seeking protection from global competition, but neither is it yet a fully developed manufacturing power. India is becoming increasingly important globally through strong services exports, a rapidly emerging digital sector, expanding manufacturing capabilities and an ambitious goal of becoming Viksit Bharat by 2047.

The latest Trade Policy Review of India published by the World Trade Organization (WTO) offers a valuable perspective on this transformation. India’s trade-to-GDP ratio reached around 50% in 2022 but moderated to 45% in 2024, remaining above pre-pandemic levels. The most important structural change is the increasing role of services. India’s net services trade surplus was 4.8% of GDP in 2024–25, partially offsetting a merchandise trade deficit of 7.3% of GDP.

There is no longer a question of whether India should participate in global trade. The question is how India can build competitiveness, raise productivity and create jobs by integrating more deeply with global trade.

Services Edge
The most significant trade surplus for India is in services. Services contributed over 50% of GDP in the first half of 2025–26, with telecom, computer and information services among the major contributors to exports.

Digitally delivered services have grown rapidly, highlighting India’s comparative advantage in information technology, software, business services and digital infrastructure. In 2022–23, the digital economy contributed about 11.7% of the Indian economy and provided employment to around 14.7 million people.

The challenge is to use this strength to raise productivity in manufacturing and agriculture. Digital technologies, AI, financial technology, logistics platforms and digital public infrastructure can lower transaction costs and help smaller firms compete at home and abroad. Services and manufacturing should therefore not be seen as competing priorities. India’s objective should be the servicification of manufacturing.

The second major challenge is tariff policy. India has been streamlining its tariff regime. Some of the highest industrial-goods rates, of 100%, 125% and 150%, were removed, while the number of basic customs duty rates was reduced in the 2025–26 Budget. Yet India’s average MFN tariff, including applicable import levies, stood at 15.7% at the eight-digit level in 2025–26. The average rates for agricultural and non-agricultural tariffs were 38.6% and 12.4%, respectively.

Tariffs are not necessarily bad. Policy space can help developing economies address market failures, support strategic sectors and give emerging industries time to grow. The problem arises when temporary protection becomes permanent, raising input costs, reducing competitiveness and ultimately hurting exports.

The cost of importing machinery, components, chemicals and intermediate goods also matters. Costlier inputs can make Indian producers less competitive against economies with more streamlined supply chains, particularly as India seeks to expand manufacturing. The WTO has also noted NITI Aayog findings on the high cost of imported inputs faced by the electronics industry. The priority should therefore be competitive supply chains, rather than simply protecting finished products through higher tariffs.

India has increased its participation in global value chains (GVCs), though it remains behind ASEAN. According to the WTO, India’s overall GVC participation index was around 43.8% in 2022, compared with around 50% for ASEAN.

There is, however, a positive signal: firms participating in GVCs perform better than non-GVC firms in India. The policy objective should therefore extend beyond increasing export volumes to raising domestic value addition.

Electronics illustrates the opportunity. Production and exports have surged, with mobile phones emerging as a success story, but India still imports substantial quantities of electronic goods and components.

The next step is to move from assembly into component manufacturing, design, engineering, research and development, software, intellectual property and branding. India’s strength in IT and digital services provides a natural base for that transition.

Agriculture presents a different challenge: predictability. India is a major agricultural exporter, particularly of cereals and processed food. Rice alone accounted for around 28% of total agricultural exports in 2024–25.

But agricultural trade is closely linked to food security and domestic price stability. Export restrictions, minimum export prices and other interventions may be warranted for short-term domestic needs. Frequent policy changes, however, create uncertainty for farmers, processors and exporters. If overseas markets can be closed at short notice, investment in processing capacity, storage and international marketing becomes harder to justify.

The priority should therefore be greater predictability in agricultural trade policy, alongside investment in storage, cold chains, logistics, food processing and climate-resilient agriculture. Over time, India should shift from commodity exports towards higher-value agricultural and processed products.

From Access to Use
India’s trade ties have also strengthened, with agreements implemented with Australia, the European Free Trade Association, Mauritius and the United Arab Emirates, while negotiations with other important partners have advanced.

These agreements can provide preferential market access, but signing an agreement is only the beginning. The real test is whether Indian companies, particularly MSMEs, use those preferences. Smaller exporters may struggle with rules of origin, certification and standards, logistics and lack of information.

India therefore needs to shift from an agreement-centric approach to a utilisation-based one. Policymakers should track which products benefit, how many firms use preferential tariffs and why eligible exporters do not.

Trade facilitation could itself become a competitive advantage. Customs processes are increasingly digitalised. The Indian Customs Electronic Data Interchange System operates at major customs stations and Special Economic Zones, while the National Single Window System has simplified interactions between traders and government agencies.

India’s position in the World Bank’s Logistics Performance Index also improved from 44th in 2018 to 38th in 2023. The gains matter not only because of tariff rates, but because of the time and cost involved in moving goods across borders.

Reducing documentation, speeding customs clearance, upgrading ports and improving connections between railways, roads, warehouses and digital logistics can significantly strengthen export competitiveness, particularly for MSMEs. Combined with lower tariffs on inputs, these reforms can have an outsized impact.

Manufacturing remains crucial to India’s development aspirations, but its contribution to GDP has stayed relatively stable at around 17–18%. The challenge is not simply to grow GDP, but to create productive employment for India’s large working population.

Labour-intensive industries such as textiles, garments, footwear, food processing, furniture, electronics assembly and engineering products can generate significant employment if they become internationally competitive. India therefore needs a manufacturing policy focused on scale, productivity and exports, rather than protection.

India’s trade policy ultimately needs a new definition of self-reliance. To achieve its goal of significantly increasing its share of global merchandise exports by 2047, Aatmanirbhar Bharat cannot mean producing everything domestically. In a world of global value chains, competitiveness also depends on access to efficient and affordable imported inputs.

India should adopt a strategic tariff policy that supports industries with cheaper imported inputs, while expanding into new products, new markets and deeper GVC participation. Self-reliance should instead be measured by the ability to compete globally, withstand external shocks and move continuously into higher-value activities.

India has many of the necessary foundations: strong services exports, a fast-growing digital economy, improved trade facilitation, expanded trade agreements and rising manufacturing capacity. The task now is to connect these strengths more effectively.

The next phase of India’s trade story will not come simply from exporting more goods and services. It will come from higher-value exports, more productive jobs and deeper integration into global production networks. The choice is therefore not simply between protection and openness, but between protection and transformation through strategic openness.

That transformation will be central to India’s ambition of becoming a developed economy by 2047.