Lowering tariffs and trade barriers could unlock Viksit Bharat 2047

Indian IT and software exports remain unaffected by both Indian and foreign tariff regimes.

By Ankur Modi

A significant component of change is India's re-evaluation of its trade policy. India can turn limitations into innovation and capital by carefully reducing tariffs and removing non-tariff barriers (NTBs). Tariffs and non-tariff barriers are well-known for protecting domestic businesses from competition while restricting access to new technology, raising manufacturing costs, and discouraging foreign investment.

To use its intellectual talent pool for sectoral advances in artificial intelligence, electric mobility, robotics, disinformation security, energy-efficient computing, neurological enhancements, and many others, India requires “risk financing and access to cutting-edge technical instruments”.

Reducing these obstacles will enable India to adopt global best practices and attract venture capital, thereby establishing a competitive manufacturing base. Risk capital fuels innovation and drives the creation of new businesses while attracting top talent and enhancing international competitiveness. Risk capital flows where the tariffs and trade barriers do not limit financial returns.

Boost to ‘Make in India’?

The real question, then, is this: how does Make in India truly take shape? India’s large population is a strategic asset—it offers a vast consumer base that drives demand while also exerting pressure on businesses to deliver products at competitive prices. This dual dynamic—scale and cost sensitivity—creates a unique advantage. In contrast, businesses in developed economies typically operate at smaller scales with higher price points. In a free trade environment, when strong domestic demand exists, global manufacturers are incentivised to establish production bases in India to cater to that scale. This scale, in turn, becomes the engine of the ‘Make in India’ model, enabling cost-effective production and making Indian-made goods globally competitive and export-ready.

However, this virtuous cycle can only be sustained if India dismantles the trade and regulatory barriers, which often stifle innovation and delay the adoption of new technologies. India’s challenge and opportunity lie in welcoming global breakthroughs while allowing sufficient time for them to develop a robust domestic market. As local demand grows, so does the case for local manufacturing—ultimately culminating in an export-driven 'Make in India' ecosystem. The core issue now is whether India is prepared to pursue a collaborative path -partnering with global technologies and innovators while pacing itself to reach its Make in India milestones.

Steve Blank claims that the United States became an innovation centre not by separating itself but by its cooperative attitude among government agencies, universities, the private sector, and foreign groups. His story of its evolution into a science superpower shows this. Known globally as the father of contemporary entrepreneurship, Blank has noted that during World War II, the United States allocated significant public funds to university laboratories while welcoming foreign scientific authorities to promote an innovation movement that is still ongoing. The United States maintained an open system that accelerated information transfer and simultaneously lowered bureaucratic barriers to innovation.

The United Kingdom welcomed free trade between the 19th and 20th centuries to accelerate its industrial growth. However, Brexit undid whatever gains the UK had achieved over centuries. The Office for Budget Responsibility (OBR) estimates that, compared to a counterfactual UK scenario in which the country remained in the EU, Brexit resulted in a long-term decline in GDP of approximately 4 per cent.

Simultaneously, Taiwan and South Korea changed from protectionist policies to open economies. Taiwan's economy opened in the 1980s, privatising government enterprises and encouraging foreign investment and trade. In the early 1960s, export-oriented industrialisation started South Korea's economic liberalisation, but the 1980s and 1990s saw markets open and state intervention decrease. In the 1980s, the US and other trading partners pressured companies to lower tariffs and non-tariff barriers. Under President Kim Young Sam, South Korea advanced “globalisation” in the 1990s, liberalising trade, capital markets, and foreign investment. This included liberalising agriculture and services, as well as lowering tariffs.

Indian IT and Software Unaffected By Tariffs

Essential industries in India are software and IT services, which have gained from openness. The sector grew without tariff safeguards using worldwide competency centres established by multinational corporations. Working with their worldwide colleagues, Indian engineers and coders gained knowledge and exposure that transformed India into the world's back office. More than 1,600 foreign companies already operate R&D facilities in India, demonstrating the strength of policy openness combined with competent human capital. Today, India does not impose tariffs or non-tariff barriers on the export of software and IT services. Indian IT and software exports, which exceeded $205 billion in FY24, remain unaffected by both Indian and foreign tariff regimes, including recent US tariff hikes. Industry experts confirm that IT services do not face direct tariffs, and the sector continues to dominate global outsourcing without regulatory barriers on export.

India's strength is its human capital and scale, but its ability alone is insufficient. Removing non-tariff and tariff restrictions in India will allow foreign cooperation and produce a vibrant domestic innovation scene. Rather than allowing everyone free access, India should aim to partner with nations that possess financial resources and technological expertise. Although obstacles can serve as protective shields, they can also create bottlenecks that limit development.

India must adopt a strategic policy of openness to become a wealthy economy. India is smart. It must allow both capital and technology to travel freely. That will connect us to 2047.

(Ankur Modi, Cluster Head for South Asia and Indochina at Philip Morris International-PMI.)

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