Source: The post Tariffs as a Catalyst for Structural Reforms in India has been created, based on the article “Tariffs must spark reforms” published in “Economic times” on 1 September 2025. Tariffs as a Catalyst for Structural Reforms in India.
UPSC Syllabus Topic: GS Paper- 2- Effect of policies and politics of developed and developing countries on India’s interests, Indian diaspora.
Context: The imposition of tariffs by the USA on Indian goods, particularly a 25% punitive tariff, has exposed India’s vulnerability to external trade shocks. Such disruptions highlight the urgent need for India to pursue deep structural reforms.
Challenges Posed by Tariffs
- A 50% tariff shock could shave off 0.4 percentage points of GDP growth, slowing India’s trajectory by 6.5%.
- Exporters of textiles, leather, chemicals, and engineering goods are particularly vulnerable.
- Overdependence on external markets risks exposing India to sudden economic shocks.
Reforms Required
1. Trade and Regulatory Reforms
- Regulations across states and the Centre should be harmonised to create a unified market.
- Outdated laws need to be phased out, and minor compliance must be reduced to ease the burden on businesses.
- Self-certification for low-risk industries should be promoted in order to improve the ease of doing business.
- Labour and Industrial Policy
- Labour laws should be made more flexible to boost competitiveness in industries.
- Workers must be safeguarded through responsible social security systems.
- MSMEs should be supported with opportunities to scale and with easier access to credit.
- Boosting Investment and FDI
- FDI should be liberalised while ensuring adequate safeguards for critical industries.
- India should position itself as a global hub for both manufacturing and services.
- Export Diversification and Trade Strategy
- Exports need to be expanded beyond traditional markets to reduce dependence on the US.
- Trade negotiations with the EU, ASEAN, Africa, and Latin America should be accelerated.
- Technology and R&D
- Greater investment is required in high-value R&D sectors such as AI, green energy, advanced manufacturing, and biotechnology.
- Sovereign technology funds should be developed to support innovation and reduce external dependence.
6. Inclusive Growth and Human Capital
- Skill development initiatives must be strengthened to create high-quality employment opportunities.
- Female labour force participation should be encouraged, along with return-to-work programmes for women.
- Sectoral Priorities
- Strategic focus should be placed on sectors such as green hydrogen, semiconductor manufacturing, rare earth minerals, and critical supply chains to build autonomy.
- Tourism and medical sectors should be improved as they hold high potential for earning foreign exchange.
Question: In light of recent global tariff disruptions, discuss how India can use such shocks as a catalyst for structural reforms.
