Competing on a level playing field: How trade deals can reshape India’s growth model

The recent trade deals with India mark more than incremental policy changes. They indicate a strategic repositioning. India no longer competes solely on cost or capacity; it competes in terms of market access. For a country running a structural current account deficit due to energy and electronics imports, export competitiveness becomes crucial for macro stability. The real challenge is therefore not to reduce imports, but to finance them sustainably. Exports remain India’s most reliable answer.Global trade is intensely competitive today. Countries that combine lower production costs with preferential tariff access are quickly conquering supply chains. Even small price differences can gradually change purchasing decisions. If a competing manufacturing center offers comparable quality at a lower cost and has better access to tariffs, global buyers will move. India’s industrial and services capabilities are globally competitive; What increasingly determines success is whether exporters compete on equal terms.

India’s approach to trade partnerships is undergoing a subtle but important evolution. The country no longer negotiates trade agreements from a position of vulnerability, but from a position of opportunity. Recent engagements with major economic blocs, including the United States, Britain and the European Union, reflect this shift. Preferential access to major consumer markets such as Europe strengthens export visibility and industrial scale. Improved tariff coordination with the United States increases competitiveness in sectors directly related to global production realignment. Collectively, these agreements are gradually repositioning India from a primarily consumption-led economy to an increasingly important participant in global production networks.

Securing competitive access

The India-EU trade deal brings India into deeper economic engagement with a bloc that includes major industrial powers such as Germany, France, Italy, Spain and the Netherlands, and significantly expands India’s global trade integration by providing preferential market access for most exports. Given that India and the EU together account for around 25% of global GDP and a third of global trade flows, the pact marks a structural milestone in India’s journey towards export competitiveness and deeper global capital alignment.

Improved rate parity can deliver tangible results:

• Higher export volumes in labor-intensive sectors
• Greater participation in America’s ‘friendshoring’ supply chains
• Greater scale of production and employment

India’s tariff position is now largely comparable to that of other major exporting economies supplying the US. In labor-intensive sectors such as textiles and leather, where even marginal cost differences matter, the previous tariff disadvantage has narrowed significantly. In global trade, purchasing decisions are often made with small margins. India is now firmly on an equal footing, competing on capacity rather than tariff differentials.

Markets prefer visibility

Recent rate clarity has coincided with renewed FII inflows of around $1.7 billion, highlighting how trade visibility influences capital allocation decisions. Stronger export momentum increasingly determines earnings quality and market valuations.

Export-oriented companies tend to show better earnings visibility and provide natural currency support during periods of rupee weakness. High-exporting sectors such as IT and pharma reflect this trend, with Nifty IT trading at a price-to-earnings of 24-25x and Nifty Pharma at around 30x, compared to the discounted valuations of the cyclical commodities.

Few sectors illustrate India’s export transformation more clearly than the electronics industry. Not so long ago, India was largely a consumer market for global electronics brands. Today it is emerging as an important production center. Electronics exports have risen to $48.2 billion by 2025, moving from seventh to third place among Indian export categories. Yet India’s export-to-GDP ratio remains around 21%, well below that of a number of Asian manufacturing economies, underscoring the scale of future opportunities.

Over the past year, FPI flows into Indian equities have become volatile. After strong inflows during 2023-2024, India saw net FPI outflows of nearly $17-18 billion in 2025 as global liquidity tightened and US yields rose. Even in early 2026, flows have remained uneven, with short bursts of inflows followed by profit-taking.

For an economy running a current account deficit driven by oil and electronics imports, strong export growth reduces dependence on unpredictable capital flows. It strengthens foreign exchange reserves, supports currency stability and increases macro credibility. This stability is important for investors. This is one of the reasons why export-oriented sectors such as IT services and pharmaceuticals have historically enjoyed higher valuations than purely domestic cyclical sectors.

A clear strategic change

If India wants to sustain high growth while managing external stability, trade integration will be important. India is gradually moving from protection-oriented caution to competition-oriented integration. At a time when global supply chains are being redefined, this shift is timely.

Trade agreements do three important things: first, they improve export competitiveness and protect market share. Second, they strengthen currency management by increasing stable profits. Third, they increase India’s attractiveness as a global manufacturing and services partner.

These agreements reflect India’s commitment to lead, compete and be among the most open, dynamic and forward-looking economies in the world. The message is clear: the world is opening its markets to India. It’s time for us to step up and lead the way.

(The authorhor, Neerja Ajit, is vice president at NovaaOne)

(Disclaimer: Recommendations, suggestions, views and expert opinions are their own. These do not represent the views of The Economic Times.)