Reforms for Higher Growth: Why India Has Not Used Trade as an Engine

The Lift Line

A country can protect its market or it can capture the world’s, and the last decade suggests India has mostly chosen the first while wanting the growth rate of the second.

Why This Editorial Matters for Your Exam

Trade policy sits at the intersection of GS Paper 3 (growth, planning, resource mobilisation, effects of liberalisation) and GS Paper 2 (bilateral and regional agreements affecting India’s interests). This editorial gives you a ready comparative frame, India against China and South Korea, that examiners reuse across essay, Mains and interview because it forces a judgement rather than a recitation of scheme names.

The transferable skill is distinguishing a signed agreement from a used agreement, and a tariff cut from a credible tariff path. Both distinctions appear again wherever policy announcements are treated as accomplished outcomes.

GS Paper 3: Indian economy and issues relating to planning, mobilisation of resources, growth, development and employment; effects of liberalisation on the economy; changes in industrial policy.

GS Paper 2: Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests.

Background and Context

The trigger is a Business Standard editorial published on 9 August 2026, part of a series examining unfinished reforms three-and-a-half decades after India’s 1991 liberalisation, which argues that trade has been the most under-exploited lever for growth.

Two agreements the government cites as evidence of trade momentum, the UK CETA and the EU FTA, both became operative or were signed within the last thirteen months, which is precisely why the editorial’s question, whether India can now capitalise on them, is timely rather than retrospective.

The Analysis

1. The 2013 peak is the number the whole argument rests on. An exports-to-GDP ratio of 25.4 per cent in 2013, followed by more than a decade below it, means India has not merely slowed its trade growth, it has gone backward relative to its own best year even as GDP itself has grown substantially. A recovering ratio of about 22 per cent in 2025-26 confirms improvement but not restoration.

2. The China and South Korea comparison is a comparison of strategy, not luck. Both economies ran export-oriented industrial policy for sustained periods: competitive exchange rates, aggressive market access negotiation, and domestic manufacturing capacity built explicitly for export rather than for import substitution. China’s rise from under 4 per cent to nearly 15 per cent of world exports between 2000 and 2020 is the empirical signature of that strategy at scale. India’s corresponding rise, from 0.66 to 1.57 per cent, shows the same direction but at roughly a tenth the magnitude.

3. Tariffs are only the most visible of three unfinished reforms. A customs duty average of roughly 10.66 per cent, with single digits promised no earlier than the FY28 Budget, keeps India’s tariff wall meaningfully higher than the near-zero regimes East Asian exporters ran during their fastest growth decades. But tariffs are the easy half of the argument.

4. Signed agreements are not the same as used agreements. The UK CETA and the EU FTA are both recent, consequential and underused in the sense that matters for growth: an Indian exporter must know the preference exists, obtain origin certification, and satisfy the partner’s standards before the tariff concession translates into an actual shipment. Absent that facilitation infrastructure, agreements deliver headlines before they deliver exports.

5. CPTPP membership is a live, contestable choice, not a settled recommendation. The bloc offers access to roughly 500 million consumers and a seat in setting digital trade, labour and state-owned enterprise rules across the Indo-Pacific. But those same rules are what caused India to exit RCEP negotiations in 2019, so the editorial’s call to “consider” CPTPP entry is a call to reopen, not close, that debate with updated analysis.

6. Investment treaties are the quiet fourth lever. Export capacity typically arrives bundled with foreign direct investment in manufacturing and logistics. A bilateral investment treaty template seen as unfriendly to investors, as India’s 2016 Model BIT was widely judged to be, discourages exactly the capital that would expand the export base the other three reforms are meant to unlock.

Data and Institutions Vault

Prelims-grade facts:

• India’s exports of goods and services peaked at 25.4 per cent of GDP in 2013; the ratio stood at roughly 22 per cent in 2025-26
• World average exports-to-GDP ratio: approximately 43.5 per cent
• China’s share of world merchandise exports: 3.86 per cent (2000) to 14.7 per cent (2020); India’s: 0.66 per cent (2000) to 1.57 per cent (2020)
• India’s simple average customs duty: approximately 10.66 per cent, down from 11.65 per cent; tariff slabs cut to eight, including a zero-duty slab
• Finance Minister Nirmala Sitharaman has indicated single-digit Customs duty on most items is targeted for the FY28 Budget (2027-28)
• India-UK CETA: signed 24 July 2025, in force from 15 July 2026; about 99 per cent of Indian goods enter the UK duty-free or at reduced tariffs, and 90 per cent of UK goods enter India duty-free or at reduced tariffs
• India-EU FTA: signed 27 January 2026 in New Delhi after nearly two decades of negotiation; gives India preferential access to 97 per cent of EU tariff lines, and India opens 92.1 per cent of its own tariff lines; the investment protection framework remains a separate, unfinished pillar
• CPTPP: Comprehensive and Progressive Agreement for Trans-Pacific Partnership; 12 member economies, about 13.5 per cent of world output, roughly $13.5 trillion combined output, 500 million consumers; the United Kingdom joined in December 2024; India is not a member
• India withdrew from RCEP (Regional Comprehensive Economic Partnership) negotiations in November 2019
• India’s Model Bilateral Investment Treaty (BIT) was finalised in 2016; the government is now revising the template to be more investor-accommodating

Watch the trap: “India signed the EU FTA” and “India benefits from the EU FTA” are different claims, the first is a fact, the second depends on utilisation, certification and facilitation that take years to build. Do not conflate CPTPP with RCEP: India is not a member of either, but exited RCEP by choice in 2019 while CPTPP membership remains an open, unresolved question the editorial explicitly raises.

The Debate

Argument FOR aggressive, unilateral tariff liberalisation and CPTPP entry. India’s tariff average is high relative to the East Asian economies that grew fastest on trade, and every year of delay is a year of forgone integration into global value chains that are relocating away from China. Two major agreements, with the UK and the EU, are now operative or signed; failing to build on that momentum wastes years of negotiating capital. CPTPP membership would signal credibility to investors weighing India against Vietnam or Indonesia as a manufacturing base.

Argument AGAINST moving too fast. Tariff protection since 2018 has served a specific industrial-policy purpose, shielding sectors while domestic manufacturing capacity was built, and unwinding it before that capacity is competitive risks a wave of import surges that undermines the very manufacturing base trade reform is meant to grow. CPTPP’s labour, digital-trade and state-owned-enterprise chapters go well beyond tariffs, and these were exactly the chapters that led India to walk away from RCEP; joining a comparably deep agreement without resolving those objections risks repeating an avoidable dispute.

Balanced verdict. The disagreement is less about direction than about sequencing and safeguards. A credible, published tariff glide path lets industry plan without demanding either an abrupt cut or indefinite protection. CPTPP entry deserves a fresh, chapter-by-chapter cost-benefit study rather than a blanket yes or no drawn from the RCEP experience, since the negotiating context and India’s manufacturing base have both changed since 2019.

How to Think About This

The transferable pattern: a growth strategy has to be judged on ratios that compound, not on announcements that make headlines.

An exports-to-GDP ratio, unlike a single quarter’s export figure, captures whether trade is actually pulling weight in the economy relative to the economy’s own size. A ratio that has not returned to its 2013 peak more than a decade later is a stronger indictment than any single year’s export number, because it strips out the effect of overall GDP growth and asks whether trade grew proportionately with it.

Run the test in three steps.

Is the reform announced, or is it delivered? A tariff glide path promised for the FY28 Budget is not the same as a tariff cut already in force.

Is the agreement signed, or is it used? Preferential access on paper requires certification infrastructure and exporter awareness before it becomes an export.

Is the comparison with the right peers? China and South Korea are the right comparators because they ran the export-led strategy India is now debating whether to adopt, not because their circumstances were identical to India’s.

The same discipline applies to reading any structural reform, labour codes, disinvestment targets, or infrastructure pipelines presented as complete once legislated or announced, when the number that matters is the one measured after implementation.

Diagram-in-Words

Takeaway Box

Lift line for an answer:

A trade agreement is an entitlement, not an export; the growth only arrives once tariffs, certification and investment all move together.

Prelims hooks: India’s exports-to-GDP ratio peaked at 25.4 per cent in 2013, roughly 22 per cent in 2025-26; world average about 43.5 per cent; China’s world export share 3.86 per cent to 14.7 per cent (2000-2020), India’s 0.66 per cent to 1.57 per cent; India’s average customs duty about 10.66 per cent, single-digit target FY28 Budget; India-UK CETA in force 15 July 2026; India-EU FTA signed 27 January 2026, 97 per cent EU tariff lines opened to India; CPTPP has 12 members, about 13.5 per cent of world output, UK joined December 2024; India exited RCEP in November 2019.

Ethics and interview angle: trade liberalisation creates aggregate gains but concentrated losses, workers and firms in protected sectors bear adjustment costs even as the wider economy benefits. What obligations does the state owe to those who lose from a reform undertaken in the national interest?

PYQ linkage: UPSC Mains has repeatedly tested the effects of liberalisation on the economy and India’s regional trade groupings, including questions on RCEP and India’s FTA strategy. This editorial supplies the export-to-GDP data point and the China-South Korea comparison that most answers on this theme omit.

Probable question: “Signing trade agreements is necessary but not sufficient for trade-led growth.” Discuss with reference to India’s exports-to-GDP trajectory since 2013 and its recent trade agreements.

Sources: Business Standard, Ministry of Commerce and Industry, PIB

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