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India had to face a heartbreaking crisis in the balance of payments in 1991 which forced the country to embark on “Big Bang” reforms which have released two decades of rapid growth. Is another external shock about to shake up the economy of India in action?
Some Indians see the parallels. With the spectrum of a “reciprocal” price by Donald Trump by 26%, the government of Narendra Modi moves quickly to negotiate a bilateral trade agreement with the United States, covering everything, from food to electronic commerce and cars.
In 1991, the drop in prices was a key element in the reforms pursued by the Narasimha Rao PV, as well as the opening of the economy to the investment and the dismantling of the bureaucracy network that the Indians called the “RAJ license”.
More than three decades later, the economy of India is more open in the world, but certain prices have come up. Direct foreign investment is at stingy levels compared to the size of India.
Administrative formalities afflict companies, local and foreign. Modi's own partners recognized the need for structural reforms, the chief economic adviser against Annantha Nageswaran declared in a recent report that the government had to “deviate” business.
The defenders of the opening of hope for lower prices and other advantages of a trade agreement – including the elimination of non -pricing obstacles that tasted trade – will bring an increase in investment and sorely need new jobs for the most populous country in the world.
“It is obvious now what we have to do: deregulate the prices and become a less closed economy,” explains Surjit Bhalla, former director of the IMF. “It is the start of departure that the Indian economy could obtain.”
An Indian official said last week that the two parties had finalized the reference conditions on American trade negotiations and now launched online talks, in order to start negotiations in May. India says that it aims to conclude the first tranche of the trade agreement by September or October, if not earlier.
“There is a clear path that we decided at the level of the leaders,” said Sunil Barthwal, secretary of commerce. India's sales teams are “really busy,” said S Jaishankar's Foreign Minister last week.
Trump’s push has encouraged Modi’s government to also speed up commercial talks with the EU and the United Kingdom, on which Indian, European and British officials all say they are reaching an agreement in principle this year.
However, the veterans of the 1991 reforms claim that the comparison is imperfect. India now has a more stable and faster economy. Analysis with rose shades also underestimate Trump's intensity and ability for U towers.
“This is not a moment in 1991,” said Montek Singh Ahluwalia, an architect of this year reforms, adding that India is now faced with a “more disorderly situation” on the international front.
“However, the EU and the United States are likely to reduce their dependence on China,” he said. “This is a potential opportunity for India, but will force us to be more open than us.”
With more competitive producers in China on the American market by a 145%rate, Indian exporters think they could benefit from a volatile commercial environment in which India's main geopolitical and commercial rival is the main target of Trump.
In theory, he can give lightness to industries such as clothing and textiles, gems and jewelry and smartphones. Largely thanks to Apple, smartphones exports increased from $ 4.7 billion to more than $ 7 billion in March 31, according to data published last week.
“Many American companies who wanted to develop in China left China,” said Ajai Sahai, CEO of the Federation of Indian export organizations. “We have the opportunity to get them in India now.”
Despite the mood of optimism in Delhi, there are reasons to doubt that India emerges from the relatively unharmed Trump trade war.
India has been a difficult negotiator – some intransigent – in commercial negotiations, including with the United Kingdom and Europe.
Piyush Goyal, Minister of Commerce of India, recently said that New Delhi “will not negotiate under the threat of a firearm” – a clear reference in the United States. Politically sensitive products such as dairy products, wheat, rice and corn will be left from the table, according to people close to talks.
With an unpredictable partner in the United States of Trump, 2025 promises to be a turbulent year for India's trade policy, whether or not.
