Why in News?

India's trade landscape is undergoing significant challenges and opportunities due to global economic disruptions and evolving geopolitical tensions.

The recently released Trade Watch report by NITI Aayog provides insights into India's trade prospects, challenges, and potential growth areas, particularly amidst the US-China trade conflict and the 'China Plus One' strategy.

What’s in Today’s Article?

• Key Findings of the NITI Aayog’s Trade Watch Report
• Geopolitical Shifts and India's Opportunities
• Sectoral Challenges and Policy Considerations for India
• Recent Developments in India’s Trade Policy
• Future Prospects
• Conclusion

Key Findings of the NITI Aayog’s Trade Watch Report:

• Limited success in the ‘China Plus One’ strategy:
  • India has had "limited success" in leveraging the 'China Plus One' strategy, where multinational companies diversify supply chains away from China.
  • Southeast Asian nations like Vietnam, Thailand, Malaysia, and Cambodia have outpaced India due to factors such as cheaper labour, simplified tax laws, lower tariffs, and proactive Free Trade Agreements (FTAs).
• Trade fragmentation and export control measures:
  • The US has imposed strict export controls on Chinese goods, further fragmenting global trade.
  • India’s key competitors in exports include Malaysia and Thailand, particularly in sectors like electrical machinery.

Geopolitical Shifts and India's Opportunities:

• US-China trade conflict - A double-edged sword:
  • The escalating US-China trade war, marked by tit-for-tat trade restrictions, offers opportunities for India.
    • US measures: Restrictions on exports of high-tech materials to China.
    • China’s response: Bans on critical materials like gallium and germanium.
  • India has a minimal share (less than 1%) in 70% of global trade, underscoring untapped potential.
  • NITI Aayog CEO B.V.R. Subrahmanyam emphasised a significant trade boom is possible if India capitalises on these disruptions.
• India-US trade relations: The US, India's largest trading partner, presents immense opportunities for growth in goods and services trade.

Sectoral Challenges and Policy Considerations for India:

• Iron and steel industry vulnerabilities:
  • India's iron and steel exports saw a sharp 33% decline in Q1 FY25, driven by weak domestic demand and oversupply in China.
  • The EU's Carbon Border Adjustment Mechanism (CBAM) poses a significant challenge:
    • Tariffs of 20–35% could reduce competitiveness and demand.
    • Compliance with emissions reporting will increase costs.
• Tariff policies - A balancing act:
  • Proposed 25% hikes in steel import duties face scrutiny. Suman Bery, Vice Chairperson of NITI Aayog, warned about lower competition and the ramifications for domestic users.
  • India’s response must balance principles and pragmatism, especially against countries with opaque industry practices and oversupply issues.

Recent Developments in India’s Trade Policy:

• Interest Equalisation Scheme: It aims to provide identified MSME manufacturing exporters a cheaper source of rupee credit for pre-shipment and post-shipment activities to improve product competitiveness in international markets.
• The Remission of Duties and Taxes on Exported Products (RoDTEP): It aims to neutralise taxes and duties on exported goods.
• Export Promotion Capital Goods (EPCG): The scheme allows duty-free import of capital goods aimed at building domestic capacity.
• Trade Facilitation: India scored 93.55% in the 2023 UNESCAP Global Survey on Digital and Sustainable Trade Facilitation (up from 90.32% in 2021), a score surpassing that of several developed countries, including France, UK, Germany, etc.
• Trade Connect e-Platform: A single-window platform to boost international trade for Indian MSME exporters, offering real-time trade info and resources to connect with government and markets.
• 11th India - New Zealand Joint Trade Committee (JTC) meeting: Service sector trade was given a special focus, alongside streamlining regulatory and quality checks.
• 5th meeting of ASEAN-India Trade in Goods Agreement Joint Committee: The meeting reviewed issues like market access, rules of origin, trade remedies, etc.

Future Prospects:

• Impact of Trump’s trade policies:
  • The general US tariffs on imports (e.g., 10%) would not harm India.
  • High tariffs on Chinese goods (e.g., 60%) could open significant market opportunities for Indian exporters.
• Focus on diversification and market expansion:
  • India needs to explore new markets and products to increase its global trade share.
  • Proactive policy measures and reforms could position India as a neutral, connecting economy amid ongoing geopolitical tensions.

Conclusion:

• India stands at a crossroads of opportunity and challenge in global trade. While competitors have seized advantages under the ‘China Plus One’ strategy, India's potential remains untapped in several sectors.
• Strategic preparation, diversification of trade partners, and reforms in policy and infrastructure could enable India to capitalize on emerging opportunities amidst global disruptions.