Finally, the 50% tariffs that US President Donald Trump had been threatening India with took effect on Wednesday. While 25% of these tariffs were reciprocal, the additional 25% has been slapped on for India's purchase of Russian oil, which Washington alleges is feeding Russia's war in Ukraine. This move threatens over half of India's exports to its biggest market.
India has hinted at possible retaliation. Prime Minister Narendra Modi has been calling for and reiterating the "Make in India" initiative. Analysts have warned that these tariffs may put two million jobs at risk as they apply mostly to labour-intensive sectors - textiles, gems, jewellery, and so on, though pharmaceuticals and electronics have been spared. The tariffs will not only make Indian goods less competitive but will also give an edge to other exporters like Vietnam, Bangladesh, or China. Yet others have warned of slower growth as additional costs, such as shipping, will push the actual effect of the tariffs to more than 50%.
The Opportunities In Eurasia
Industry bodies have called for diversification of India's exports. This has galvanised India to look to other markets, including those not traditionally focused on or widely considered. Prime amongst them is, ironically, the Russia-led Eurasian Economic Union (EAEU). This bloc includes Russia, Belarus, Armenia, Kyrgyzstan, and powerhouse Kazakhstan. India has been negotiating a free trade agreement (FTA) with the bloc for a while.
Last week, India's External Affairs Minister, S. Jaishankar, visited Moscow, where he co-chaired the 26th round of India-Russia Inter-Governmental Commission for Trade, Economic, Scientific, Technological and Cultural Cooperation (IRIGC-TEC). In his opening remarks, he said, "Today, as we meet, allow me to lay out some of the salient features of the agenda before us. Addressing tariff and non-tariff trade barriers, removing bottlenecks in logistics, promoting connectivity through the International North-South Transport Corridor, the Northern Sea Route and the Chennai-Vladivostok Corridor."
During his visit, India and the EAEU signed the Terms of Reference (ToR) to formally launch negotiations for an FTA. The bloc, created in 2015 as Moscow's response to the European Union, has a combined GDP of $6.8 trillion and represents 180 million people. Trade between India and the bloc reached $69 billion in 2024 - a 7% rise over the previous year.
The Changed Market In Russia
India's primary economic partner in the EAEU is Russia, which is currently India's fourth-largest trading partner. Last year, trade between the two countries crossed $60 billion, primarily due to New Delhi's purchases of Russian oil. Imports from Russia accounted for $56 billion. As India seeks to address this huge trade imbalance, opportunities have opened up. Under sanctions for the last three years because of its war in Ukraine, Russia has been compelled to become self-reliant. India can export a wide range of goods, from machinery to crockery, which the Russian market seeks, according to Gaurav Gupta, Founder, Global Trade and Technology Council of India. Moreover, the billions of rupees that have been accruing to Russia in India also create imperatives for the latter to stimulate exports to that country. This will help promote the Indian rupee while saving India's foreign exchange. An FTA with the bloc will further help diversify India's export market, as goods to Russia can find their way to other member-states of the bloc.
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Kazakhstan, a member of the EAEU, for instance, wants Indian investments and production lines in the country. An extremely resource-rich country, it is India's largest supplier of uranium and is rich in rare earth metals, which can help alleviate India's search for them. However, the country has a weak manufacturing base. By setting up manufacturing there, India could not only cater to the Kazakh market but also to other markets in the bloc. This would also create a market for Indian labour there.
With traditional labour markets, like in the Gulf countries, already saturated, the EAEU also represents a new migration corridor for Indian labour. Russia, for instance, has been recruiting Indian labour, and this is not to send them to the war front but to its factories and plants. India also has an agreement with Armenia for the recruitment of around 50,000 personnel per year. Thus, by focusing on this bloc, India can reap a rich harvest.
The GCC's Importance
While India is focusing on 40 other markets, two other blocs that hold great significance are the GCC (Gulf Cooperation Council) and the ASEAN (Association of South East Asian Nations).
With GCC, the focus has traditionally been on labour migration and energy security. The bloc, which includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE, has wealth funds that now manage between an estimated $4.9 trillion and $5 trillion in assets that are expected to surpass $7 trillion by 2030, and 30% of global oil reserves. It is also a major exporter of natural gas.
The GCC is a top trading bloc for India. Bilateral trade with it exceeded $161 billion in 2023-24, with the top trading partners being the UAE and Saudi Arabia. The GCC is critical to India's energy needs as it meets over 60% of its crude oil demands. This share may have dipped over the last couple of years when India turned to discounted Russian oil, but the GCC still is a major source of India's energy supplies. India also imports 70% of its natural gas requirements from here. Besides, almost 9 million Indians live across GCC states and are a major source of foreign remittances, estimated to be over $50 billion annually.
Conclude That FTA
An FTA with the GCC would enable greater economic integration, reduce trade barriers, address asymmetrical tariffs, and allow for greater cross-border movement of labour and capital. India already has a Framework Agreement on Economic Cooperation with the GCC, which began the negotiations for an FTA. Formal negotiations for the FTA were resumed in 2022. In January this year, the GCC again expressed intentions to initiate formal discussions within the year. India must now push in earnest for an early conclusion of the talks.
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India also already has a CEPA (Comprehensive Economic Partnership Agreement) with the UAE in place, which has doubled the trade between the two countries and reduced tariff barriers on 80% of goods traded between them. India is negotiating similar agreements with Oman and Qatar and is also seeking digital and financial integration with the bloc. For instance, India's UPI and RuPay card systems are functional in the UAE and are being integrated with Oman's digital payment platforms. This increases the ease of travel and tourism, as well as retail, as this writer experienced last year in the UAE.
Ultimately, an FTA with India will enable the GCC to diversify their economies too, looking beyond oil, driving both oil and non-oil growth.
The ASEAN Game
Similarly, ASEAN is another powerhouse that India is looking to revise its FTA with. The bloc has a combined GDP of approximately $3.6 trillion in 2022, making it the fifth-largest in the world. It represents approximately 700 million people. ASEAN's GDP has more than doubled since 2009, and its growth forecast remains strong.
The bloc is India's fourth-largest trading partner. The total bilateral trade between India and the ASEAN bloc reached approximately $123.12 billion in 2024-25, accounting for almost 11% of India's overall global trade. The FTA India had entered into with the bloc in 2010 is thought to have driven this. However, some structural shortcomings with regard to market access for Indian goods, cumbersome rules of origin clauses, and, in particular, concerns about Chinese goods entering India via the bloc, are thought to have prevented both sides from exploiting the actual potential of bilateral trade.
What is important is that bilateral trade between India and individual ASEAN countries, such as Singapore and Malaysia - also two of the leading economies in the bloc - has soared. While with Singapore, India's trade totalled about $35 billion in 2023-24, with Malaysia, it reached approximately $20 billion.
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India is now seeking to revise the FTA with the bloc to remove structural weaknesses and harness the full potential of the relationship. With ASEAN countries also feeling the heat of Trump's tariffs, it becomes imperative for both sides to conclude an early revision of the agreement.
Look Beyond Uncle Sam
The key lesson here is to look beyond Western markets. The world is changing rapidly, and India must be prescient enough to take advantage of the shifting global economic landscape. Along with all this, India must also restructure its internal trade and manufacturing policies. With all the above-mentioned blocs, India has a negative balance of trade. Therefore, New Delhi must in earnest undertake measures and reforms to strengthen its manufacturing base. With an abundance of labour and resources required, it is a miracle that India still lags in this sector. Hopefully, Trump's tariffs will be a new awakening and a new beginning for India.
(The author is a journalist and political analyst)
Disclaimer: These are the personal opinions of the author
