Festival of Light, Shadows of Trade

Prime Minister Narendra Modi, on Tuesday, while greeting the nation on the occasion of Deepavali/ Diwali, urged citizens to adopt Swadeshi products and promote “Ek Bharat, Shreshtha Bharat”. He also advised citizens to contribute to building a “Viksit” (developed) and “Aatmanirbhar” (self-reliant) India. Diwali festival exceptionally stimulates nearly all segments of the economy, earning it the nickname the “Celebration of the Indian Economy”. Notwithstanding the Prime Minister’s passionate appeal to buy swadeshi products, newspaper reports suggest that around 70 per cent of Diwali market items, including idols, decorative pieces, clay utensils, and firecrackers, were imported primarily from China. This indicates how deeply the Chinese products have penetrated into the Indian market. Nonetheless, this year, a surge in demand for local Diwali products like traditional diyas and green crackers has also been reported.

Growing dependence on China

Despite unresolved border conflicts and xenophobic calls by a few Indian leaders to boycott China, India’s dependence on its big neighbour is on the rise. Mainland China emerged as India’s top import source in the first half (April- September) of this financial year with USD 62.89 billion worth of inbound shipments- a rise of 11.2 per cent. Imports from Hong Kong (USD 11.7 billion) have increased by 20 per cent compared to the last fiscal period

Significantly, The Economic Times reports that India’s trade ministry and NITI Aayog are considering easing certain tariff and non-tariff restrictions on Chinese imports to secure raw materials vital for industrial and export growth. Measures under discussion include letting anti-dumping duties lapse on some products and cutting tariffs on raw materials for sectors like leather and engineering goods where domestic supply is limited. India’s trade deficit with mainland China in April-September was USD 54.4 billion. It was USD 49.6 billion in the corresponding period last fiscal. The Indian government has decided to let lapse a USD 23 billion ‘Production Linked Incentive (PLI) program, just four years after it launched in 2020, to incentivize domestic manufacturing and woo firms away from China, reports The Hindu. Many firms that participated in the PLI program failed to kick-start production, while others that met manufacturing targets found India slow to pay out subsidies. Firms were promised cash pay-outs if they met individual production targets and deadlines. The hope was to raise the share of manufacturing in the economy to 25 per cent by 2025. Manufacturing accounted for just 14 per cent of GDP for the fiscal year 2024-25 from over 15 per cent when the scheme was launched in 2020.

Taking advantage of India’s growing dependence on Chinese imports, India is being enticed to join the China-led trade bloc, the Regional Comprehensive Economic Partnership (RCEP), to benefit from lower tariffs. The tariffs on manufactured goods within RCEP are set to fall to zero within a decade. Chinese expert Liqing Zhang, director of the Centre for International Finance Studies in Beijing, recently stated that China could import more from India if New Delhi joins the RCEP and becomes more open to Beijing. He emphasized RCEP’s potential to enhance the competitiveness of Indian goods and bilateral trade, urging India to reconsider its stance.

Rising trade deficits

As expected, the global trade war is impacting India’s foreign trade. The trade deficit in September nearly doubled to USD 16.6 billion, compared to USD 9.88 billion in August 2025 and USD 8.6 billion in September 2024. Services, which have so far bolstered India’s export performance, saw exports shrinking 5.5 per cent in September 2025 to USD 30.8 billion. Merchandise trade deficit hit an 11-month high of USD 32.15 billion in September as imports surged to USD 68.53 billion, outpacing exports of USD 36.38 billion. The widening deficit follows U.S. tariff hikes on Indian goods like textiles, shrimp, and gems. Despite this, goods exports to the U.S. rose over 13 per cent in the first half of the fiscal year. Economists had expected the September trade deficit to be USD 25.13 billion. The USA remains India’s major trading partner. The first six months of the fiscal year starting April saw goods exports to the U.S. rise to USD 45.82 billion from USD 40.42 billion a year earlier, while imports from the U.S. climbed to USD 25.59 billion from USD 23.47 billion a year ago. However, data reveal that India’s exports to the USA have been steadily declining over the last few months. India’s exports to the U.S. stood at USD 8.8 billion in May 2025; they were valued at USD 5.5 billion in September 2025.

During the first six months (April–September) of 2025-26, though India’s imports from its major partner countries – China, UAE, USA, and Saudi Arabia have increased, imports from Russia, India’s third largest source, have declined by 7.4 per cent to USD 31.12 billion. This indicates India’s willingness to accept the USA’s embargo on Russian crude. It is reported that India and the US are nearing a long-stalled trade deal that would reduce American tariffs on Indian imports to 15 per cent to 16 per cent from 50 per cent. The agreement, which hinges on energy and agriculture, may see India gradually scale back its imports of Russian crude oil, the report added. At present, Russia supplies roughly 34 per cent of India’s crude oil imports, while around 10 per cent of the country’s oil and gas requirements (by value) come from the United States. It is also revealed that India is considering raising the quota for importing non-GM maize from the US while keeping the 15 per cent duty unchanged. The current limit is 0.5 million tonnes annually. Furthermore, India may allow more American corn to meet growing domestic demand from the poultry feed, dairy, and ethanol sectors. Earlier, it was reported that India was considering allowing imports of certain processed genetically modified (GM) farm products from the US, such as soybean meal and corn by-products used in animal feed, as part of on-going trade negotiations with the USA. GM foods imported as ‘animal feed’ will end up in open market for human consumption. Opening the farm sector to US corporate farmers will have a serious impact on Indian farmers.

The ultimate sufferers

The traditional crafts communities of India, who are facing serious challenges from the uncontrolled imports of cheap Chinese products consumed by the common Indian households, mostly belong to other backward class (OBC), scheduled castes (SC) , scheduled tribes (ST), and other marginalized communities who constitute around 7—80 per cent of the Indian population. Despite constitutional promises of equality, SCs, STs, and OBCs face persistent caste-based violence and exclusion.As these groups have a very limited representation in the policy-making bodies, their economic interests never get due priority. Although the Indian government spends huge fund to promote exports by launching the ‘Make in India’ project and Productivity Linked Incentives (PLI) schemes, it is totally reluctant to safeguard its huge domestic market and millions of traditional micro and small enterprises from the tsunami of cheap East Asian imports.

If India’s farm sector is opened to the USA farmers who enjoy huge state support, millions of Indian small farmers and farm labourers will face major livelihood challenges. It may be recalled that following the signing of the North American Free Trade Agreement (NAFTA) in the 1990s, Mexico had to import massive amounts of cheap U.S. corn, which drove more than a million Mexican farmers out of business who then had to take up employment as workers in U.S. factories. Here again, non-elite small farmers of India, most of whom belong to Sudra (the lowest Varna), OBC, SC and ST categories will be the worst sufferers.

The jobless growth models of the last century have failed. India needs an elaborate caste census to develop a people-centric, inclusive economic policy. The pro-western elitist economic growth models, followed by the Indian policy makers since independence, have led to an unsustainable economy and created several internal colonies across the nation. Indian economic policies should be rewritten in the context of its current internal colonialism.

Gloomy economic indicators

Though global rating agency S&P remains bullish about the Indian economy, which, according to their estimate, is expected to grow at 6.5 per cent in 2025-26, few basic economic indicators portray a gloomy picture. Here are a few examples:

• India’s manufacturing sector expansion lost some momentum in September, slipping to its weakest pace in four months, while factory gate prices surged at the fastest rate in nearly 12 years to combat mounting input costs, report Reuters. HSBC’s India Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, fell to 57.7 in September from August’s more robust 59.3 and lower than a preliminary reading of 58.5, reflecting the slowest improvement in operating conditions since May.
• India’s annual retail inflation slowed to an eight-year low of 1.54 per cent in September. Retail inflation was below a Reuters poll of 1.7 per cent and the lowest since June 2017, when it stood at 1.46 per cent. Food prices dropped 2.28 per cent Y/Y in September vs 0.64 per cent decline in August. Sustained fall in retail price could be due to a fall in market demand, which indicates sign of recession.
• According to a report jointly prepared by the International Labour Organization (ILO) and the Institute for Human Development (IHD), over the decade until 2022, the average monthly real earnings of regular salaried workers of India declined by 1 per cent each year. The average real monthly wage of a regular wage worker has dipped to Rs 10,925 in 2022 from Rs 12,100 in 2012, as calculated by the ILO using official government data. Wages in urban areas have decreased faster than in rural areas to Rs 12,616 in 2022 from Rs 13,616 in 2012, compared to Rs 8,623 in rural areas from Rs 8,966 over the same period.[14] The non-binding National Floor Level Minimum Wage (NFLMW), which applies to the unorganised sector, has remained unchanged since 2017 at Rs 176 per day. The last time the NFLMW was revised in June 2017, when it was hiked by 10 per cent. Earlier in July 2015, it was hiked by 17 per cent to Rs 160.
• A study by the Indian Express indicates that the private sector’s contribution (share in per cent) in the total investment in the economy has declined to around 33 per cent in 2023-24 from over 40 per cent in 2015-16. During this period, the government’s share has remained the same, around 25 per cent but the share of the households has increased from 32 per cent to 42 per cent. It appears that the private sector is not that bullish about the economy.
• India’s unemployment rate climbed to 5.2 per cent in September. The rural unemployment rate climbed to 4.6 per cent, up from 4.3 per cent in August, its highest since June 2025. Meanwhile, urban unemployment ticked up marginally to 6.8 per cent from 6.7 per cent. Gender-wise, unemployment among men increased to 5.1 per cent (from 5 per cent), while the rate among women rose more sharply to 5.5 per cent (from 5.2 per cent). Among youth aged 15–29, unemployment rose to 15 per cent, reflecting strain among new entrants to the job market. While women’s youth unemployment remained stable at 17.8 per cent, men’s increased to 13.9 per cent from 13.5 per cent.