How trade wars and geopolitics are reshaping India’s growth story

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How trade wars and geopolitics are reshaping India’s growth story

How trade wars and geopolitics are reshaping India’s growth story

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Sep 27,25

India’s journey through the turbulence of trade wars and geopolitical conflicts is as much about resilience as it is about ambition. Rahul Bhandurge, Director - Sales & Business Development, BDB India Pvt Ltd, explains how global protectionism, shifting supply chains, and conflicts are reshaping India’s economic future.

How trade wars and geopolitics are reshaping India’s growth story

In the 1990s and early 2000s, globalisation seemed unstoppable. Container ships moved goods seamlessly across oceans, tariffs steadily fell, and “just-in-time” supply chains stitched together a world where cost efficiency reigned supreme. But as we step deeper into the 2020s, that world has fractured. Tariffs are back. Sea lanes are blocked. Climate goals have become trade rules. And geopolitics, more than cost optimization, is deciding the fate of global commerce.

In this new reality, India finds itself at a historic inflection point. With its vast domestic market, competitive workforce, and an accelerating policy push under schemes like Production-Linked Incentives (PLI), the country is being courted as the next great hub for global manufacturing and services. Yet the risks are just as large: rising protectionism, volatile energy prices, and a heavy dependence on imports of critical materials still threaten to undercut the promise.

The central question is this: will India’s rise in a fractured global order prove to be a fleeting “China+1” opportunity, or the foundation of a durable new growth era?

The return of trade wars

The most visible symbol of today’s disrupted global economy is the return of tariffs and protectionist walls. Nowhere is this clearer than in the intensifying US–China economic conflict.

In May 2024, the US administration slapped 100% tariffs on electric vehicles, 50% tariffs on solar products, and 50% tariffs on semiconductors imported from China. The intent was clear: cut dependence on Beijing in strategic sectors while reshoring or “friend-shoring” critical supply chains. The impact rippled far beyond Washington and Beijing. Multinationals scrambled to diversify production bases - India, Vietnam, and Mexico became the new names on corporate strategy maps.

Meanwhile, Europe has turned climate goals into trade weapons. The European Union’s Carbon Border Adjustment Mechanism (CBAM), in its transition phase until 2025 and full rollout by 2026, will force exporters to declare and pay for the carbon embedded in goods like steel, aluminum, and cement. For Indian firms in textiles, metals, and chemicals, this means rising compliance costs - and the need to quickly decarbonize supply chains.

The International Monetary Fund has already warned that these moves, when combined, are dragging down global GDP by 0.3–0.5% annually. For a world economy already grappling with slowdowns in major markets, that is a significant hit.

Chokepoints of global conflict

If tariffs are the new walls, wars and regional conflicts are the new choke points.

Russia–Ukraine War: For India, the war turned Moscow into its biggest crude supplier, accounting for 35% of imports in FY24 - up from less than 2% before the conflict. Cheap Russian oil helped India control inflation, but it also deepened strategic dependence on an unpredictable partner. At the same time, disruption of sunflower oil and fertilizer exports from the Black Sea region drove up food inflation in India.
Middle East & Red Sea Attacks: Houthis striking commercial ships in the Red Sea forced shipping companies to reroute vessels around the Cape of Good Hope. For Indian exporters, this meant freight rates jumped by 130% and delivery times stretched by up to two weeks. The Middle East supplies nearly half of India’s oil; instability there translates directly into higher fuel and power bills back home.
Taiwan Strait Tensions: Taiwan produces 60% of the world’s semiconductors and 90% of the most advanced chips. For India, which imports 65% of its semiconductors, any disruption would freeze industries from automobiles to smartphones. This vulnerability is what spurred the ?76,000 crore India Semiconductor Mission, with support from the US and Japan.

In short, today’s conflicts aren’t just about geopolitics; they are about shipping costs, delivery timelines, and inflation in every household.

India’s trade snapshot: A story of two halves

By FY24–25, India’s total trade (goods + services) had crossed $820 billion, with merchandise contributing $437.4 billion and services $387.5 billion. That near-50:50 split is unique among large economies.

Services are India’s crown jewel. IT, consulting, and emerging sectors like fintech and edtech made India’s services exports the fastest-growing in the world, touching nearly $400 billion. Global Capability Centers (GCCs) in cities from Bengaluru to Coimbatore are powering digital operations for multinationals ranging from Microsoft to Airbus.

Merchandise trade, however, tells a less flattering story. India continues to run a trade deficit of nearly $94 billion, with energy and electronics imports ballooning. Manufacturing, though growing, still contributes only about 17% of GDP - far short of the 25% target for 2025.

This duality - services boom alongside manufacturing gaps — is at the heart of India’s global trade dilemma.

The twin faces of impact

The global churn has presented India with a paradox: risks that can derail its growth story, and opportunities that can catapult it into a new orbit.

The risks are:

Export Vulnerability: Nearly one-third of India’s exports go to just two regions — the US and the EU. With Washington imposing steep tariffs on key Indian goods like apparel and jewellery, order volumes could fall by 70%, trimming as much as 0.5% of GDP.
Energy Inflation: India imports nearly 88% of its crude needs. Every $10/barrel increase adds $15 billion to the import bill and raises inflation by 30–40 basis points.
China Dependence: From electronic components to active pharmaceutical ingredients (APIs), China remains India’s biggest supplier. In pharma, 70% of APIs come from China - a major strategic vulnerability.
Business Uncertainty: Rising tariffs and investor hesitation mean global companies are cautious about placing long-term bets in India.

The opportunities are:

China+1 Momentum: Apple assembled $22 billion worth of iPhones in India in FY24, nearly 14% of global output. Smartphone exports crossed $15 billion, half of which came from Apple alone. Foxconn, Dell, and Micron are lining up billions more in investments.
Energy Diversification: Discounted Russian oil has cut import bills, while India has surged to become the 4th largest renewable energy market globally, with over 180 GW of installed capacity.
Strategic Partnerships: The India–UAE CEPA is already boosting duty-free access, while the Quad has deepened tech and defence collaboration.
Services Resilience: With GCCs and IT exports expanding at 8–10% annually, India’s digital backbone provides stability even in turbulent times.

Sectoral impact: Winners and losers

In this volatile environment, some sectors have benefited, while others are facing hurdles.

Electronics and manufacturing: Electronics exports touched $29 billion in FY24, with smartphones leading the charge. But the Achilles heel remains: semiconductors. Until domestic fabs take off, India will remain vulnerable to external supply shocks.

Textiles: Worth $40 billion in exports, textiles face a compliance storm under Europe’s CBAM. Indian exporters will need to decarbonize or risk losing competitiveness. Yet, buyers looking to exit China may give India a new lifeline.

Pharmaceuticals: India supplies 20% of the world’s generics but imports 70% of APIs from China. Bulk drug parks and PLI schemes are trying to fix this, but it will take years before supply chains are truly de-risked.

Energy: While oil import dependence is a structural weakness, India’s push for 500 GW of renewable capacity by 2030 is attracting both domestic and global capital. Green hydrogen and solar manufacturing are the next big frontiers.

Defence: Defence exports reached ?21,000 crore in FY24 - a tenfold increase in a decade. From co-producing jet engines with GE to building drones with the US, India is moving steadily from being the world’s largest arms importer to an emerging defence exporter.

Services: With $200+ billion in IT exports and 1,500+ GCCs operating from India, the services story remains the most resilient. India’s fintech ecosystem, anchored by UPI’s global expansion, is now among the largest in the world.

India’s position in a changing world: Balancing risks and opportunities

The shifts in global trade and geopolitics have opened up new opportunities for India, but they also come with challenges that need careful navigation. While the world increasingly looks to India as a stable and reliable partner, the country must ensure that these opportunities are not just short-lived benefits, but stepping stones toward long-term growth.

The reconfiguration of global supply chains has positioned India as a trusted alternative to China, especially for companies looking to reduce their dependence on a single market. This has already translated into high-profile investments in electronics, semiconductors, and manufacturing.

At the same time, India’s digital economy and services sector remain strong pillars of growth. With IT-enabled services, consulting, and Global Capability Centers (GCCs) expanding rapidly, India continues to serve as a global back office and increasingly as a hub for innovation.

On the energy front, India is advancing its place in the renewable energy transition, now ranking among the top countries in installed capacity. As the world shifts towards sustainability, India has an opportunity to establish leadership in green technologies and solutions.

Further, the emergence of a multipolar world, where global power is distributed across several countries, creates more space for India to build meaningful partnerships. Engagements with the US, EU, Japan, Australia, and West Asia give India a unique platform to shape the global agenda rather than simply adapt to it.

Finally, India’s young workforce represents a powerful demographic advantage. If provided with the right skills and opportunities, this generation could power growth across industries and sustain India’s rise over the coming decades.

However, these opportunities come with important risks. A key concern is the overdependence on temporary geopolitical shifts, such as the current trade tensions or energy price advantages. If global alignments change, India could lose some of these short-term gains.

Domestically, infrastructure bottlenecks and policy unpredictability remain stumbling blocks for long-term investors. While reforms have been introduced, delays in implementation and regulatory uncertainty can erode business confidence.

Equally critical is the challenge of education and skills development. Without significant investment in human capital, India risks falling short of preparing its youth for industries of the future, whether in advanced manufacturing, artificial intelligence, or green technologies.

There is also the perception risk: if India does not move fast enough, it may be seen by global companies merely as a “backup option” to China, rather than a primary hub of innovation and production.

India’s success will depend on its ability to balance domestic resilience with global integration, seizing opportunities abroad while building a strong, competitive, and inclusive economy at home. If managed well, the next two decades could see India move decisively from being an emerging power to a central pillar of the global order.

Timelines of opportunity

Given the present market environment, the road ahead for Indian manufacturing sector looks like as follows:

Short term: Inflation pressures from oil, fertilizer, and food imports; EU CBAM threatening textiles; US tariffs hitting merchandise exports.
Medium term: $15–20 billion of annual FDI inflows expected into electronics and auto components as global supply chains diversify; India–GCC and India–EU trade deals likely to unlock fresh markets.
Long term: India’s share of global manufacturing could rise to 5–6% by 2030, worth $500 billion in output. Combined with IT and digital services, India could become a $7 trillion economy by 2030, the world’s third-largest.

Policy and industry playbooks

To propel growth, the government must:

Accelerate FTAs: Closing deals with the EU and ASEAN is critical. India currently has FTA coverage for only 30% of global GDP, compared to Vietnam’s 70%.
Build semiconductor and energy self-reliance: Expand fabs, secure rare earths, and boost solar module manufacturing.
Fix logistics: India spends 13–14% of GDP on logistics versus 8–9% in advanced economies. Bringing this down to 9–10% could save $50 billion annually.
Reduce China dependence: From APIs to electronics, domestic capacity building is non-negotiable.

On the other hand, the industry must:

Diversify markets: Africa and Latin America are emerging as new $100 billion opportunities.
Risk-proof supply chains: Multi-country sourcing and AI-driven supply chain monitoring should be the new norm.
Invest in R&D: India spends just 0.7% of GDP on R&D versus OECD’s 2–3%. Scaling this up is vital for EVs, biotech, and aerospace.
Bet on digital + green: Position India as a hub for renewable energy equipment and digital exports.

Conclusion: From opportunity to destiny

India’s journey through the turbulence of trade wars and geopolitical conflicts is as much about resilience as it is about ambition. The country faces an uneasy paradox: one foot anchored in vulnerabilities — oil dependence, China-centric supply chains, export risks — and the other stepping into unprecedented opportunities — China+1, renewable energy leadership, digital dominance.

The stakes are enormous. If India merely reacts to global disruptions, it risks being a temporary beneficiary. But if it builds on them, investing in logistics, self-reliance, R&D, and skill-building, it could emerge not just as a substitute to China, but as a central hub shaping the future of global commerce.

The next decade will decide whether India’s story is one of missed chances or fulfilled destiny.

About the author:

Rahul Bhandurge, Director - Sales & Business Development of BDB India Pvt Ltd, has over 17 years of market research & industry experience. His market experience spans India and international markets. He works closely with industry associations and trade bodies in India and abroad to lead strategic initiatives, promoting growth within industries and ecosystems.