Content

• India’s trade strategy in a multipolar world
• Attracting talent positioned abroad

India’s trade strategy in a multipolar world

Source : The Hindu

Why in News? 

• India signed the India–EU Free Trade Agreement on 27 January 2026, after nearly two decades of negotiations, creating a trade space covering ~2 billion people and nearly one-fourth of global GDP (EU ~14–15%, India ~7% in PPP terms).
• In February 2026, India and the U.S. agreed on an interim framework toward a broader Bilateral Trade Agreement (BTA); the U.S. accounts for ~18% of India’s total exports, making it India’s largest single-country export destination.
• As per the Department of Commerce Year-End Review 2025, India’s total exports (merchandise + services) reached USD 825.25 billion, registering 6.05% annual growth, despite global trade slowdown (~3% global trade growth).

Relevance

GS II – International Relations

• India–EU FTA (2026) and India–U.S. interim trade framework as tools of economic diplomacy.
• Effect of policies of developed countries on India’s trade interests.
• Strategic autonomy in a multipolar global order.

GS III – Indian Economy (External Sector)

• Export performance: USD 825.25 billion (2025); 6.05% growth.
• FTP 2023 target: USD 2 trillion exports by 2030.
• FTA coverage expansion: 22% (2019) to 71% (2026 projected).
• Global Value Chain integration and MSME competitiveness.

Practice Question

• “In a multipolar world, trade agreements have become instruments of strategic statecraft.” Examine in the context of India–EU FTA (2026) and the evolving India–U.S. trade framework.(250 Words)

I. Structural Context: Shift in Trade Philosophy

From Defensive to Strategic Integration

• India opted out of RCEP (2019) fearing import surges (especially from China), trade deficits, and inadequate safeguard mechanisms.
• Post-2019, India adopted a dual-track approach:
  • Domestic capacity building via 14 PLI schemes across 14 sectors, with a financial outlay of ₹1.97 lakh crore.
  • Aggressive FTA negotiations with advanced economies (UAE CEPA 2022, Australia ECTA 2022, EU 2026, U.S. framework 2026).
• India’s FTA-linked export coverage projected to rise from 22% (2019) to ~71% by 2026, marking a structural reorientation of trade geography.

II. Quantitative Trade Performance

• India’s merchandise exports: ~USD 450+ billion; services exports: ~USD 375+ billion (IT services, business services, financial services).
• Services exports now account for ~45% of total exports, reducing vulnerability to merchandise trade volatility.
• Target under Foreign Trade Policy (FTP) 2023:
  • USD 2 trillion exports by 2030
  • Districts as Export Hubs initiative
  • Emphasis on e-commerce exports (target: USD 200 billion by 2030).
• India’s share in global merchandise exports remains ~2%, indicating significant untapped export potential.

III. India–EU FTA: Economic Significance

Market Access & Tariff Liberalisation

• EU is India’s second-largest trading partner, with bilateral trade exceeding USD 120 billion+ annually.
• The agreement eliminates or reduces tariffs on over 90% of traded goods, covering key labour-intensive sectors:
  • Textiles and garments (EU imports worth ~USD 200+ billion annually).
  • Pharmaceuticals (India is the world’s 3rd largest pharma producer by volume).
  • Marine products and chemicals.
• EU’s advanced machinery and capital goods exports to India can reduce production costs in electronics and green manufacturing sectors.

Strategic Impact

• EU’s Carbon Border Adjustment Mechanism (CBAM) could affect Indian exports in steel, cement, and aluminium; FTA negotiations provide a platform to address such regulatory barriers.
• Preferential access enhances competitiveness vis-à-vis Bangladesh and Vietnam, both of which enjoy favourable EU tariff regimes.

IV. India–U.S. Interim Framework: Strategic Depth

• India–U.S. bilateral trade crossed USD 190+ billion in 2024, making the U.S. India’s largest trading partner.
• Strategic cooperation in rare earths and semiconductors aligns with India’s ₹76,000 crore Semiconductor Mission and electronics manufacturing expansion (electronics exports crossed USD 25+ billion in 2024–25).
• Progressive tariff reductions can improve India’s competitiveness in pharmaceuticals, engineering goods, and IT-enabled services in the U.S. market.

V. Integration into Global Value Chains (GVCs)

• India’s GVC participation remains lower than East Asian economies; FTAs reduce tariffs on intermediate goods, improving competitiveness in:
  • Electronics assembly
  • Automotive components
  • Pharmaceuticals and APIs
• Lower logistics costs under the National Logistics Policy (target: reduce logistics cost from ~14% of GDP to ~8–9%) can amplify FTA benefits.

VI. MSME & Employment Linkages

• MSMEs contribute nearly 30% to GDP and ~45% to exports; improved market access enhances labour-intensive employment.
• Textiles, leather, and agri-processing sectors employ millions in semi-skilled labour; tariff elimination can stimulate cluster-based employment growth.
• Export expansion supports formalisation and productivity gains under schemes like RoDTEP and RoSCTL.

VII. Diplomatic & Strategic Dimensions

• Trade agreements strengthen India’s voice in WTO reform debates and global trade norm-setting (digital trade, sustainability standards).
• Diversification reduces overdependence on any single geography; India’s exports are distributed across the U.S., EU, UAE, ASEAN, and Africa.
• Economic interdependence enhances geopolitical leverage in a multipolar system marked by U.S.–China rivalry and supply chain fragmentation.

VIII. Governance & Policy Synergy

• Alignment with domestic reforms:
  • PLI schemes (₹1.97 lakh crore outlay).
  • Infrastructure push under PM Gati Shakti.
  • Digitisation of customs under ICEGATE.
• Digital trade expansion leverages India’s services strength; IT exports already exceed USD 200 billion annually.

IX. Challenges & Risks

• India runs trade deficits with several FTA partners; risk of widening merchandise deficits without export diversification.
• Compliance with EU environmental and labour standards increases certification costs for MSMEs.
• Exposure of sensitive sectors (dairy, agriculture, small manufacturing) to competitive pressures.
• CBAM and green trade barriers could erode competitiveness in carbon-intensive sectors.

X. Way Forward

• Move up the value chain in electronics, green hydrogen, semiconductors, and EV supply chains.
• Increase manufacturing share in GDP from ~17% to 25% (long-standing policy target).
• Institutionalise FTA impact assessments with sectoral dashboards tracking trade balance, employment, and value addition.
• Expand trade diplomacy expertise to address next-generation issues: digital trade norms, sustainability-linked trade measures, and supply-chain security frameworks.

Core Insight

• India’s trade strategy reflects a calibrated shift from protection-led regionalism to competitive integration with advanced markets. With exports at USD 825.25 billion and FTA coverage nearing 71%, the next phase depends not merely on market access but on domestic productivity, logistics efficiency, and technological upgrading.

Prelims Pointers

• Foreign Trade Policy (FTP) 2023 target: USD 2 trillion exports by 2030.
• India’s total exports (2025): USD 825.25 billion; 6.05% annual growth.
• FTA coverage projected to increase from 22% (2019) to 71% (2026).
• India opted out of RCEP in 2019.
• India–EU FTA signed 27 January 2026.

Attracting talent positioned abroad

Source : The Hindu

Why in News? 

• In 2025, Washington imposed a one-time $1,00,000 fee on new H-1B visa petitions, significantly raising entry costs for foreign skilled workers and directly affecting Indian technology professionals.
• In FY 2024, 71% of total 3,99,395 H-1B approvals were granted to Indian nationals, making India disproportionately sensitive to U.S. immigration policy shifts.
• The policy shift coincides with India’s renewed push to attract overseas professionals through programmes such as GATI, eMigrate V2.0, VAJRA Faculty Scheme, and Know India Programme, signalling a strategic opportunity to convert “brain drain” into “brain circulation.”

Relevance

GS II – Indian Diaspora

• 71% of H-1B approvals (FY 2024) to Indian nationals.
• Impact of $1,00,000 H-1B fee (2025) on skilled migration.
• Diaspora engagement initiatives: GATI, VAJRA, eMigrate.

Structural Background: India & the H-1B Ecosystem

• The H-1B visa programme has historically functioned as a primary channel for high-skilled Indian migration, particularly in technology, engineering, and research domains, linking India’s human capital ecosystem with the U.S. innovation economy.
• In FY 2024, 71% of H-1B approvals were Indian nationals, reflecting India’s unparalleled dominance and deep integration into U.S. high-skilled labour markets.
• The educational profile of H-1B holders has shifted upward: master’s degree holders increased from 31% in 2000 to 57% in 2021, while bachelor’s-only holders declined from 57% to 34%, indicating rising skill intensity.

Nature of the 2025 H-1B Disruption

• The imposition of a $1,00,000 filing fee on new petitions substantially raises hiring costs for U.S. firms, potentially reducing demand for fresh overseas applicants while incentivising domestic talent substitution.
• Limited exemptions were introduced for applicants transitioning from F-1 student visas to H-1B, offering short-term relief to U.S.-educated Indian graduates but maintaining barriers for direct overseas hires.
• Reports suggest a 30% increase in Ivy League Indian graduates exploring opportunities in India, alongside senior executives reassessing long-term U.S. prospects due to visa uncertainty.

India’s Policy Response: Talent Re-Engagement Architecture

• The Government of India has launched structured outreach initiatives such as Global Access to Talent from India (GATI), aimed at leveraging overseas Indian expertise for domestic innovation ecosystems.
• eMigrate V2.0 seeks to digitise and regulate overseas employment systems while strengthening data-driven migration governance.
• The VAJRA Faculty Scheme (Visiting Advanced Joint Research Faculty) enables global Indian researchers to collaborate with Indian institutions, strengthening research networks and knowledge transfer.
• The Know India Programme promotes diaspora engagement and cultural reintegration, strengthening soft-power linkages alongside economic participation.

Economic & Innovation Implications

A. Opportunity for Brain Circulation

• India hosts over 1,600 Global Capability Centres (GCCs) employing 1.66 million professionals, providing an expanding domestic high-skilled employment ecosystem capable of absorbing returning talent.
• Rising U.S. visa costs, combined with expanding domestic tech clusters and PLI-backed manufacturing, create favourable conditions for reversing long-term talent outflows.
• Return migration can enhance entrepreneurial dynamism, deepen venture capital networks, and accelerate technology diffusion into domestic startups and research institutions.

B. Structural Constraints

• India’s R&D expenditure stands at only 0.64% of GDP, significantly below the U.S. (3.47%), China (2.41%), and Israel (5.71%), limiting absorptive research capacity for high-end scientific talent.
• Limited private-sector R&D participation and the dominance of low-to-mid value manufacturing reduce opportunities for cutting-edge innovation careers within India.

State-Level Absorptive Capacity: Empirical Insights

A. Maharashtra

• Maharashtra remains India’s largest startup cluster with a Startup, Entrepreneurship, and Innovation Policy (2025), yet high housing costs, school access constraints, and absence of spouse-employment support deter long-term reintegration.
• Firm-level incentives such as incubators and seed capital exist, but household-level integration costs remain high, limiting broad-based return migration.

B. Delhi

• Delhi attracts returnees due to proximity to national laboratories, ministries, and policy networks, serving as an institutional gateway rather than a purely entrepreneurial hub.
• However, high housing costs and recruitment networks favour individuals with pre-existing institutional capital, restricting accessibility for broader talent pools.

C. Karnataka

• Karnataka’s Beyond Bengaluru and Skill Development Policy (2025–32) aims to decentralise growth to Mysuru and Mangaluru through Global Capability Centres.
• Nevertheless, limited global research infrastructure, healthcare, and international schooling facilities constrain “family readiness,” reducing long-term retention prospects.

Governance & Social Dimension

• Migration research indicates that while wages drive initial relocation decisions, long-term retention depends on social networks, spouse employment, educational opportunities for children, and quality-of-life factors.
• Indian States primarily compete for firms through infrastructure incentives but often neglect holistic relocation ecosystems that support families of high-skilled returnees.
• Without integrated urban planning, education reforms, and housing support, return migration risks remaining temporary rather than structural.

Strategic & Geopolitical Implications

• The H-1B policy shift reflects broader geopolitical recalibrations under U.S. immigration tightening, reinforcing the fragility of relying heavily on external labour markets.
• Diversifying talent opportunities domestically strengthens India’s strategic autonomy and reduces vulnerability to unilateral visa policy changes.
• Reintegrating diaspora professionals enhances India’s capacity in frontier sectors such as semiconductors, AI, advanced manufacturing, and defence technology.

Challenges

• High urban living costs in major metros reduce affordability for mid-career returnees despite competitive salaries.
• Weak university–industry linkages limit research commercialisation, constraining opportunities for high-end innovation careers.
• Policy fragmentation between Centre and States results in uneven absorptive capacity and inconsistent relocation incentives.

Way Forward

• Increase R&D expenditure toward at least 1% of GDP in the medium term, with targeted tax incentives to catalyse private-sector research participation.
• Develop “Returnee Integration Packages” at the State level including housing subsidies, guaranteed school access, and spouse-employment facilitation mechanisms.
• Strengthen Global Capability Centres and semiconductor missions to create high-value innovation jobs aligned with diaspora expertise.
• Promote distributed urban growth models combining innovation clusters with livability infrastructure to convert short-term return into permanent reintegration.

Prelims Pointers

• FY 2024 H-1B approvals: 3,99,395 total; 71% Indian nationals.
• India’s R&D expenditure: 0.64% of GDP.
• Educational shift: Master’s degree holders among H-1B beneficiaries increased from 31% (2000) to 57% (2021).
• India hosts 1,600+ GCCs employing 1.66 million professionals.

Practice Question

• The 2025 tightening of the H-1B visa regime presents India with a strategic opportunity. Examine how diaspora engagement policies can convert this disruption into long-term national advantage.(250 Words)