This post presents our monthly curation of developments in the Indian policy landscape – highlighting I4I content pertaining to US tariffs on India, oil trade and energy security, and the need for greater regional diversification of export markets.    

As of 27 August, a 50% duty on Indian imports into the US has come into effect. Data from the Directorate General of Foreign Trade, Ministry of Commerce and Industry, Government of India, show that this move by the Trump administration exposes US$60.85 billion (70% of India’s exports to the US) to the new tariff. Gulati et al. (2025) note that while this is only 1.56% of India’s gross domestic product (GDP) and 7.38% of its total exports, the key issue is that labour-intensive sectors such as textiles and apparel, and agricultural products like shrimp, will bear the brunt. Further, these segments were already at a competitive disadvantage vis-à-vis other trading partners – for example, textile and apparel exports from Bangladesh, for whom the US tariff is 20%. Thus, the potential adverse impact on a large number of jobs and farmer livelihoods is a matter of concern for India. 

In this context, the authors recommend identifying the worst-affected sectors so that targeted relief – in the form of temporary interest-free loans, capital incentives, taxation waivers, GST (goods and services tax) rate cuts, and compensation for freight subsidy – can be provided by the government. They emphasise the need to roll out these measures within a few weeks, such that exporter earnings and jobs are protected. Importantly, they suggest that India ought to implement overdue domestic reforms – to enhance ease of doing business and foster innovation, supply chain efficiency, infrastructure modernisation, high productivity, and research and development – for Indian goods to become more competitive globally. 

The matter of oil

As highlighted by Gulati et al. (2025), “these steps, referred to as secondary sanctions, were presented as action against Russia’s main energy partners, one of which is India.” Russia accounts for 35% of India’s crude oil imports. Although discounted Russian oil helps reduce India’s import bill, the savings would now need to be weighed against the impact of the secondary sanctions. 

At the same time, the authors underline the significance of India’s energy security at cost-effective prices, as the country is the third-largest consumer of oil. Russia is the top exporter of crude oil, and India and China are its largest buyers. If India and China were to stop importing oil from Russia, other producers would not be able to meet the higher demand at the same prices – driving up oil prices and imposing costs on the global economy as a whole. 

In her January 2024 I4I blog, Sharmila Kantha put forth that India’s oil and gas production has exhibited a downward trend over the last 10 years or so. On the other hand, consumption is on the rise, which may put pressure on India’s mineral fuel exports that bring in a significant amount of foreign exchange. Kantha cautioned that oil trade is vulnerable to geopolitics; India should diversify its import sources, make its export strategy less dependent on oil, and step up exploration and production of oil and gas domestically.

India and Regional Comprehensive Economic Partnership

Writing in the Indian Express on the US-India trade negotiations, Anil Sasi contends that “the build-up to the RCEP, and the last minute jettisoning of the deal by New Delhi, seems to be coming full circle.” The Regional Comprehensive Economic Partnership (RCEP) negotiations were initiated by leaders of ASEAN (Association of Southeast Asian Nations) countries¹ in 2012. While India was a part of the long negotiations, in November 2019 it ultimately decided not to join this agreement between the Southeast Asian nations and their free-trading partners². The main concern was that higher imports from RCEP countries, particularly China, may negatively impact India’s agriculture and industry. 

In their I4I post at the time, Agrawal and Malhotra summarised some of the relevant academic literature on trade in goods³, to argue that India should not remain closed to the idea of being a part of RCEP. They highlight the divergence between economic research and public opinion on matters of international trade – while economists by and large favour trade liberalisation, there is general pessimism around trade. The evidence points towards gains from trade, but it is true that these are unevenly distributed – especially if there are constraints on the reallocation of labour and capital across sectors, such as on account of India’s rigid labour laws. The authors conclude that as long as India undertakes certain domestic reforms, it should be able to “mitigate the adverse effects, and capitalise on the pro-competitive effects, of joining the RCEP.” 

Six years later, with the US tariffs on India kicking in, there are calls for India to strengthen ties with emerging economies and to consider joining regional trade blocs like RCEP; indeed, a thawing of India-China relations seems to be on the cards

Regional diversification of India’s export markets

Beyond US tariffs, Sharmila Kantha points towards other disruptions in global trade such as the Middle East conflict, leading to the emergence of a ‘new normal’, where flows of goods are vulnerable to continuous tumultuous periods. Analysing the trends in India’s exports during 2017-2024, she deliberates on how the country can respond to the situation via regional diversification of exports. Over the years, data show that Indian exports have become more concentrated rather than diversified. In 2017, the top five export markets together accounted for about 38.9% of India’s total goods exports; the figure now stands at 39.4%. In particular, the share of the US has gone up from 15.6% to 18.3%. 

While India has made gains in Africa and the US, there remains tremendous scope to expand its presence in markets such as the EU. The dynamic ASEAN market also warrants more attention from the country’s exporters. Overall, Kantha recommends “a more aggressive export promotion strategy that is regional stratified and balanced.” In addition to tapping the large markets in developed nations, there ought to be continued efforts in the Global South – based on real-time data monitoring of imports, identification of comparative advantage, and targeted marketing.  

Notes:

1. These include Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.
2. These include India, China, Japan, South Korea, Australia, and New Zealand.
3. A caveat is that this literature studies the unilateral removal of trade barriers, rather than trade agreements. The latter also involves diversion of trade from the most productive countries to those covered under a free trade agreement.