How Budget 2026 can help India strike the right balance in trade policy for a world in flux

India's trade policy stands at a pivotal juncture, undergoing a strategic transformation from a broad liberalization approach, which characterized the post-1991 reforms, to a more nuanced and 'selective engagement' strategy. This shift is not merely an academic exercise but a pragmatic response to a highly volatile global economic landscape, marked by geopolitical tensions, supply chain disruptions, and rising protectionism. The upcoming Union Budget, specifically Budget 2026, is anticipated to be instrumental in institutionalizing this new direction, focusing on enhancing market access, ensuring supply chain resilience, and fostering agility in trade operations.

Historically, India's trade policy has seen significant swings. Prior to 1991, the economy largely operated under an import-substitution industrialization model, characterized by high tariffs and quantitative restrictions, aimed at protecting nascent domestic industries. This era, while fostering some self-reliance, also led to inefficiencies and limited global integration. The economic crisis of 1991 necessitated a radical shift, ushering in an era of broad liberalization. India opened its markets, reduced tariffs, and actively participated in multilateral trade forums like the World Trade Organization (WTO), aligning with global free trade principles. This period saw significant growth in trade volumes and greater integration into the global economy.

However, the past decade, especially post-2019, has witnessed a recalibration. Global events such as the US-China trade war, the COVID-19 pandemic, and the Russia-Ukraine conflict exposed the vulnerabilities of overly globalized and fragmented supply chains. Nations began prioritizing domestic manufacturing capabilities and diversifying their trade dependencies. India, under its 'Atmanirbhar Bharat' (Self-Reliant India) vision, began to reassess its trade strategy. The move towards 'selective engagement' signifies that India is no longer pursuing free trade agreements (FTAs) indiscriminately but is carefully evaluating them for reciprocal benefits, market access for its goods and services, and strategic alignment. Examples include recent FTAs with the UAE and Australia, which are seen as strategic partners providing specific market access opportunities.

Central to this new strategy are domestic initiatives like the Production Linked Incentive (PLI) schemes. Launched in March 2020, these schemes aim to boost domestic manufacturing and make India a global manufacturing hub by offering incentives on incremental sales from products manufactured in India. Covering 14 key sectors, including mobile manufacturing, pharmaceuticals, automobiles, textiles, and advanced chemistry cell batteries, PLI schemes are designed to attract foreign investment, create jobs, reduce import dependence, and enhance India's export competitiveness. They are a critical tool in building manufacturing strength, which is essential for negotiating better terms in trade pacts and ensuring supply chain resilience.

Key stakeholders in this evolving trade policy landscape include the **Ministry of Commerce and Industry**, responsible for formulating and negotiating trade agreements and policies; the **Ministry of Finance**, which allocates resources through the Union Budget to support trade infrastructure, export promotion, and PLI schemes; **Indian industry and manufacturers**, who are both beneficiaries and subjects of these policies, seeking market access and competitiveness; **exporters and importers**, whose operations are directly impacted; and **international trading partners**, who engage in bilateral and multilateral negotiations with India. Ultimately, **Indian consumers** are also significant stakeholders, affected by the availability, quality, and pricing of goods.

This shift matters immensely for India's future. Economically, it aims to accelerate growth by transforming India into a manufacturing powerhouse, boosting exports, and creating millions of jobs. It is crucial for enhancing India's global competitive edge and securing its position in global value chains. Geopolitically, a strong, self-reliant, and agile trading nation enhances India's strategic autonomy and influence. The focus on supply chain assurance directly addresses national security concerns, reducing dependence on single sources for critical goods.

Constitutionally, the power to legislate on foreign trade and commerce primarily rests with the Union Government, as enshrined in **Article 246** of the Constitution, particularly **Entry 41** of the Union List (Seventh Schedule) which covers 'Trade and commerce with foreign countries; customs frontiers; export and import across such frontiers.' The **Foreign Trade (Development and Regulation) Act, 1992**, provides the statutory framework for governing India's foreign trade, empowering the Central Government to formulate and implement the Foreign Trade Policy (FTP). The ongoing policy evolution is consistent with these constitutional provisions and legislative frameworks.

Looking ahead, the future implications are profound. This strategic pivot, if successfully implemented through cohesive policy measures in the Union Budget, could position India as a more resilient and influential player in global trade. It could lead to higher and more sustainable economic growth, driven by domestic manufacturing and diversified exports. However, challenges remain, including navigating global protectionist tendencies, ensuring the competitiveness of domestic industries without fostering inefficiency, and continuously adapting policies to rapidly changing global dynamics. The success of Budget 2026 and subsequent policy iterations will hinge on striking a delicate balance between protecting domestic interests and leveraging global opportunities, ensuring India's trade policy remains agile and responsive in a world in flux.