OPINION | India’s trade doctrine privileges comparative advantage over tariff asymmetries

India’s digital trade strategy reflects calibrated openness.

India’s trade strategy has shifted from politically driven caution to economic logic grounded in comparative advantage.

From the Free Trade Agreements (FTAs) signed with Australia, EFTA, UK and the EU to the India–US Interim Bilateral Trade Agreement (BTA), a coherent doctrine is visible; expanded market access in return for foreign direct investments and technology to position India as a reliable supply chain partner. 

The recent U.S. Supreme Court ruling limiting unilateral executive tariff authority underscores that, in an era of policy fluctuations, India cannot rely on temporary tariff asymmetries. Its trade strategy must build on fundamental economic strengths and comparative advantages.

The tariff advantage

Under Washington’s 2026 “reciprocal tariff” regime, most Asian economies faced rates of 19–20%, with China effectively priced out at 30–50+% depending on product category. India secured 18% reciprocal rate, the lowest in South and Southeast Asia barring Singapore.

In margin-driven sectors such as electronics, textiles, and auto components, even a 1–2 percentage points delta can shape supply-chain configuration.

Sectoral recalibration was equally consequential. Tariffs on “Make in India” products, fell from a peak of 50% to 18%, with select sectors such as pharma, gems and diamonds moving to zero. For US importers, tariff math tilted towards India over competing destinations such as Vietnam or Thailand.

Tariffs are a function of political cycles and their fallout

Yet, the US Supreme Court ruling underlined a structural reality; tariffs can change with political cycles or judicial interventions.

India should treat favourable tariff differentials as an additive advantage. Its foundational trade model must focus on comparative advantages, regulatory alignment, supply chain efficiencies, manufacturing scale, and policy autonomy; factors that outlast external disruptions. 

The “China Poison Pill”

The US “poison pill,” first codified in the United States-Mexico-Canada Agreement (USMCA), allows Washington to exit a trade pact if a partner signs an FTA with a “non-market economy” like China. Economies such as Malaysia and Cambodia accepted USMCA-style clauses granting effective veto power. India did not.

Instead, India strengthened its own compliance architecture. Under Customs (Administration of Rules of Origin under Trade Agreements) (CAROTAR), it replaced a basic “Certificate of Origin” regime with stricter “Proof of Origin” requirements, empowering customs authorities to demand full supply-chain documentation.

In the UK and EFTA FTAs, India secured process-specific rules, including “melt and pour” provisions in metals, preventing minimally altered Chinese steel from entering duty-free. In an era of de-risking and origin scrutiny, compliance credibility becomes a competitive asset.

Energy & Defence as strategic anchors

With India’s energy demand rising 7% annually, diversification reduces geopolitical risk and input volatility, strengthening industrial competitiveness. While Russian oil imports fell 40% year-on-year in January to $2.86 billion, amid shrinking crude discounts and payment hurdles, a diversification trend is already underway through broader engagements with the US and other suppliers.

The non-binding $500 billion US imports over a five-year roadmap spanning defence, energy, advanced technology provides predictable supply of strategic goods amid tensions in the Indo-Pacific. Multi-year procurement and technology partnerships also strengthen bilateral commercial relations. These commitments are not transactional concessions, rather key inputs necessary to drive India’s economic and technological growth.  

Digital Economy - Openness with guardrails

India’s digital trade strategy reflects calibrated openness. Access to advanced US chips and cloud infrastructure gives fillip to India’s services economy leveraging capital-intensive AI infrastructure, strengthening sovereign compute capacity and furthering India’s digital public infrastructure. Integration with US semiconductor ecosystems positions India as a credible technology manufacturing and innovation hub.

Crucially, regulatory flexibility was preserved. While the US template typically mandates unrestricted cross-border data flows and bans localisation, the 2026 interim BTA keeps transfers subject to national security exceptions, without blanket prohibition on localisation. 

India’s Digital Personal Data Protection Act retains authority to mandate domestic storage or processing of sensitive data.

The EU and UK negotiations reflect similar discipline. Binding “data free flow” clauses were resisted; transfers remain consultative rather than automatic, preserving the right to restrict flows to non-adequate jurisdictions. Open Government Data commitments are limited to non-sensitive datasets, protecting core digital public infrastructure such as Aadhaar and UPI back-end systems. Digital integration proceeds but on sovereign terms.

Red lines protected

India’s poultry and dairy sectors, the third largest globally, remain feed-cost sensitive. Allowing cheaper Distillers Dried Grains with Solubles (DDGS) imports lowers production costs, stabilises prices, and strengthens value-added protein exports and agriculture efficiency.

Tariff calibration mirrors this discipline. In the UK FTA, India’s dairy and core cereals remain excluded. The EU framework follows seven-to-ten-year phase-outs for sensitive sectors. In the India–New Zealand agreement, for the first time in Wellington’s trade history, flagship dairy products don’t get access to Indian market.

Across these deals, the doctrine is consistent, use tariff openings as leverage, further manufacturing investments and exports, integrate digitally while maintaining sovereign data control and protect red lines. If US tariff authority now faces judicial constraint, that only sharpens the lesson. Tariffs may fluctuate, relative advantages endure. India’s strategy succeeds when it builds on them.

(Anuj Gupta is the India MD of BowerGroupAsia.)

Views are personal and do not represent the stand of this publication.