Syllabus: GS-II: Growth & Development

The News

The Prime Minister has stepped up public appeals and policy actions to boost domestic manufacturing (“Make in India” / “swadeshi” pushes), accelerate industrial parks (PM-MITRA textile parks), and expand incentive schemes — underlining local production as both an economic buffer and a strategic objective.

More About the News

• In August–September 2025 the United States imposed steep additional tariffs on several Indian exports — raising duties on some items to 50% — in a dispute tied to India’s trade choices and geopolitical alignments. 
• The move hit labour-intensive exporters (textiles, gems-jewellery, seafood) and prompted urgent trade diplomacy. 
• The U.S. negotiators visited New Delhi for expedited talks and Indian officials began drawing up relief measures for affected industries. 

The US tariff issue 

• What happened: The U.S. administration announced punitive tariff increases on certain Indian imports, citing trade imbalances and policy disagreements; in some instances duties rose to 50%, sharply raising costs for Indian exporters to the U.S. market.
• Immediate effects: Export volumes to the U.S. fell in recent months and labour-intensive sectors reported sudden demand collapse and margin stress. 
  • New Delhi has characterised talks with the U.S. as “positive” but accelerated negotiations are now aimed at de-escalation and a longer-term trade understanding.

PM’s push for local production

• Political leadership has responded in two ways: 
  • Diplomacy — fast-track trade talks with the U.S. to find an agreeable settlement; and 
  • Domestic resilience — double down on policies to expand India’s manufacturing base, protect jobs and reduce external vulnerabilities. 

• Festival-season Swadeshi appeal
  • The Prime Minister urged citizens during the festive season to buy Made-in-India goods and for traders to prominently display that their products are indigenous.
  • He asked citizens to check whether the product is made domestically, to keep money in India and support national development.
• PM-MITRA Park in Dhar
  • Laid foundation in Madhya Pradesh’s Dhar district for India’s first Pradhan Mantri Mega Integrated Textile Region & Apparel (PM MITRA) Park, one of seven such parks approved.
  • The park aligns with PM Modi’s “5F” model: Farm → Fibre → Factory → Fashion → Foreign.
  • It has already secured investments of over ₹20,000–₹23,000 crore from dozens of textile firms; aims to generate around 3 lakh jobs (direct + indirect).
  • Key features include plug-and-play infrastructure, ready availability of inputs like cotton and silk, quality check facilities, and connectivity to domestic and export markets.
• Trade diversification & outreach
  • In light of the US’s 50% tariffs, the government is planning export outreach programs in about 40 countries, especially focusing on sustainable and quality textile products to reduce dependence on the US market.
  • Strategic efforts are being made to enhance India’s exports in non-traditional markets and also improve compliance with global standards (sustainability, ESG) to maintain competitiveness.
• Policy incentives & regulatory support
  • Under the PM MITRA scheme, textile parks are being given incentives like low land rates, favorable power tariffs, and state-centre collaboration in SPVs (Special Purpose Vehicles) to fast-track infrastructure.
  • Push for inclusion of more shuttle-less looms and textile machinery under tax and customs duty exemptions to reduce costs of production.
• Swadeshi campaign, “Vocal for Local” rhetoric
  • The PM has used strong public rhetoric, asking shop-owners, traders and citizens to adopt Swadeshi boards (“selling only Indian goods”) and called swadeshi the foundation of a developed India by 2047.
  • Emphasis is being placed not just on production, but consumption patterns: festival purchases, gifting, home decor — all to be made in India.
• Manufacturing tie-ups & global investments
  • The government is inviting foreign and domestic investment into PM MITRA Parks (including proposals from outside textile sector players) and encouraging global firms to locate manufacturing in India with ‘Make in India’ incentives.
  • Example: Japanese textile companies have been invited to invest in PM MITRA Parks.

Why does local production (including MSMEs) matter ?

• Employment & livelihoods: MSMEs are labour-intensive and geographically dispersed; they are the second largest employer after agriculture, supporting millions of households. 
  • MSMEs contribute ~30% of GDP and over 45% of India’s exports, making them central to both growth and inclusion. Strengthening domestic manufacturing therefore protects jobs and livelihoods.
• Trade resilience & strategic autonomy: Strong domestic capacity reduces exposure to sudden external trade shocks (tariffs, embargoes, supply-chain disruptions). 
  • For strategic sectors (pharma, electronics, defence, batteries), domestic scaling is a national-security imperative.
• Value addition & fiscal gains: Local manufacturing retains more value in the country (wages, corporate tax, corporate activity), improves the trade-off between exports and imports and supports industrial linkages.
• Industrial diversification: A stronger manufacturing base enables India to climb global value chains rather than remain a low-value supplier vulnerable to foreign policy shifts.

Steps already taken to promote local production 

• Production-Linked Incentive (PLI) programmes: A suite of PLI schemes for 14 strategic sectors (electronics, pharma, medical devices, auto and EVs, textiles, chemicals, etc.) offers performance-linked subsidies to scale domestic production and attract global firms.
• Greenfield industrial parks & PM-MITRA: Large integrated parks (PM-MITRA for textiles) concentrate infrastructure, skills and value chains to reduce unit costs and raise export competitiveness.
• Logistics & infrastructure push: PM-Gati Shakti and logistics master plans aim to lower transaction costs and improve time-to-market for manufacturers.
• MSME support & credit access: Expanded registrations, schemes for credit facilitation and export promotion, and sector-specific support to scale clusters and modernise units. (MSME outreach and annual programmes target credit, skilling, digitalisation.)
• Export support & contingency planning: The Commerce Ministry has drawn up relief options (liquidity support, collateral-free loans, subsidised interest and credit guarantees) to shield exporters from abrupt tariff shocks while talks proceed.
  

Challenges faced by local industries and MSMEs 

• Scale & competitiveness: Many Indian firms — especially micro and small enterprises — operate at low scale, hindering productivity and price competitiveness versus global rivals.
• Access to affordable credit & working capital: Short-term liquidity crunches (exacerbated by tariff shocks) can force order cancellations and lay-offs; MSMEs often face high financing costs. 
  • Recent government relief plans aim to tackle this but operational delivery remains critical.
• Compliance & quality standards: Global buyers require strict quality, certification and ESG compliance; small firms need technical assistance and cluster upgrading to meet such thresholds.
• Input costs & supply chains: Dependence on imported inputs (certain chemicals, components, semiconductors) creates vulnerability to currency swings and trade barriers.
• Logistics & infrastructure gaps: Last-mile logistics, port congestion and interstate regulatory frictions raise transaction costs. PM-GatiShakti targets these, but on-ground transformation takes time.
• Skilling & technology adoption: Low automation, slow digital adoption and skill shortages limit productivity gains; policy incentives must be paired with rapid skilling and capital investment.
• Geopolitical risk: Tariff actions (e.g., US measures) can be sudden and politically driven, creating unpredictable external demand shocks that domestic policy can only partly offset.

Policy trade-offs and deeper governance issues

• Short-term relief vs long-term reform: Liquidity packages and export credit are essential to avoid immediate job losses, but they must be accompanied by structural reforms (ease of doing business, land and labour reforms, stronger clusters).
• Protection vs competitiveness: While tariffs and protectionist pressure make a “shield” politically tempting, protection without productivity improvements fosters complacency; policy must incentivise competitiveness, not perpetual shelter.
• Sectoral prioritisation: India must balance between strategic self-reliance (pharma, semiconductors, batteries) and preserving competitiveness in labour-intensive sectors (textiles, gems) that employ millions.

Way forward 

1. Short-term (0–12 months):
   
   • Implement the relief package for exporters (collateral-free working capital, subsidised interest, credit guarantees) to stabilise the cash flow of MSMEs hit by tariffs.
   • Fast-track targeted procurement from domestic suppliers (public procurement quotas, PSU sourcing) to replace lost US orders where feasible.
   • Use immediate diplomatic channels to de-escalate tariffs while negotiating market-access concessions.
     
2. Medium-term (1–3 years):
   
   • Scale PLI and cluster development with a focus on backward linkages: ensure PLI winners source inputs from domestic MSME suppliers through contractual arrangements and supplier development programmes.
   • Expand custom hiring centres, common facility centres and technology upgrades in industrial clusters to raise productivity.
   • Strengthen export promotion (district export hubs, certification labs, branding support) and diversify markets (reduce over-dependence on any single market).
     
3. Long-term (3–7 years):
   
   • Invest in deep technology and skills (semiconductors, advanced batteries, AI-driven manufacturing) and in R&D linkages between industry and academia.
   • Continue to improve logistics and regulatory harmonisation (single window, e-governance) to lower transaction costs permanently (PM-GatiShakti deliverables).
   • Pursue strategic trade agreements (phased trade arrangements) to lock in market access and rules-based trade relations.
     
4. Cross-cutting measures:
   
   • Implement a MSME competitiveness mission: finance, technology, standards, and market access in one integrated programme.
   • Build a Resilience Fund for exporters to manage sudden geopolitical shocks — pre-approved relief that can be disbursed quickly.
   • Strengthen sectoral data & early-warning systems to anticipate demand shocks and respond proactively.
     

Conclusion

The recent U.S. tariff escalation has been a wake-up call: trade frictions can rapidly translate into job losses and output shocks. The government’s response — a two-pronged strategy of urgent relief plus accelerated local production push — is the right mix, but success depends on execution. Local production is not a quick fix; it is a strategic transformation requiring scaled incentives (PLI), MSME modernisation, logistics investment, quality upgrading and diplomatic efforts to restore market access. If India can convert political momentum into structural reform and inclusive capacity building, the crisis from tariffs can be converted into an opportunity to build a more resilient, higher-value manufacturing ecosystem.

Mains Practice Question 

“The recent imposition of steep U.S. tariffs on Indian exports highlights the vulnerability of India’s trade-led growth. Critically examine India’s policy response emphasizing local production.” (250 words/15 marks)

Key facts & figures (quick revision)

• 50% — headline U.S. tariff level applied on certain Indian goods (August–September 2025).
• Export relief & talks: India and the U.S. have held expedited trade talks; New Delhi is preparing a targeted relief package for exporters.
• PLI coverage: PLI architecture expanded to 14 sectors to scale domestic production and attract investment.

MSME importance: MSMEs contribute roughly ~30% of GDP and over 45% of India’s exports (FY data & ministry reporting).

The Hindu