The era of unquestioning acceptance of free trade ideology is over, says NITI Aayog member Arvind Virmani

The era of unquestioning acceptance of free trade ideology is over, says Dr Arvind Virmani, Member of NITI Aayog, in an exclusive chat with CNBC-TV18. As global trade dynamics shift with the rise of reciprocal tariffs and economic nationalism, India must navigate evolving uncertainties. In this Q&A, Dr. Virmani discusses the potential impact of these changes on India’s economy, the sectors most affected, and the necessary reforms to strengthen the country’s position in global trade.He also sheds light on how India can turn these challenges into opportunities by recalibrating its policies to attract multinational-led manufacturing supply chains.

More on what he said here –
How will the reciprocal tariffs impact India?Even before the tariffs were announced, global policy uncertainty was at its highest level in decades. The immediate short-term impact of reciprocal tariffs is an increase in global uncertainty. While the announcement of precise tariffs may initially appear to reduce uncertainty, it also creates new uncertainties. For instance, there is heightened uncertainty about how countries like China will respond to these tariffs.

This uncertainty will affect global FDI, international trade, investment, and GDP growth (relative to what it would have been).

Which sectors of the Indian economy are likely to be more impacted?

In the short to medium term, the impact of differential US tariffs depends on the commodity and the relative tariffs on competitors. Broadly, there are three categories:

(a) Exempt goods (e.g., pharmaceuticals): Little or no effect.

(b) Exports where the largest competitors in the US market are from the EU or LAC: Reduced demand for Indian exports.

(c) Exports where the closest competitors are from East and Southeast Asia: Increased demand for Indian exports.

In the medium term, the negative effects would be minimized through the first phase of the USA-India BTA.

Considering that such a punitive trade policy could be adopted by other nations in the future, what economic reforms are necessary for India to strengthen itself?

The era of unquestioning acceptance of free trade ideology is over. The world is gradually accepting what I have warned about quietly for two decades and more openly since 2013: that communist dictatorships have been cleverly gaming the world trading system and associated FDI and technology policies of market economies under the guise of free trade!

This, however, is not the final word on how fair and unfair trade is defined; the concept will continue to evolve. Many of the policy reforms announced by the government over the past five to seven years, and currently being implemented, recognise this issue and are evolving to address it.

Can India gain and seize the opportunity to supply more to other nations?

Analysts and commentators worldwide have offered various explanations. One of these is the US strategy to diversify its supply chains away from excessive dependence on a single country. If India views this challenge as an opportunity and adjusts its policies to facilitate the development of MNE-led manufacturing supply chains, it can benefit from these changes over the next decade.

How can the India US BTA be beneficial for India?

India-USA BTA can help build USA-India supply chains which can compete with current USA–China supply chains. Building competitive, trusted supply chains in the next 10-15 years, will be beneficial for both USA and India.