Trade Tantrums
India has yet to realise its export potential, which can derail the Viksit Bharat dream and prevent the country from cashing in on the China+1 opportunity
EXPORTS HAVE LONG BEEN INDIA’S ACHILLES’ HEEL. The Modi government’s hope that its policies of the past few years—be it Aatmanirbhar Bharat or the performance-linked incentive (PLI) scheme for chosen sectors—would boost exports has been marred by the continuing unrest in eastern Europe and West Asia, disruptions in the Red Sea and the slow recovery of global markets.
If exports of goods and services accounted for 25 per cent of the GDP in 2013, they stood at 22.8 per cent in 2022, per World Bank data. According to commerce ministry numbers, India’s overall exports (merchandise and services) in FY24 are estimated to be $777 billion, a tiny sliver of growth of 0.04 per cent from the year before. India’s share in global exports was 1.8 per cent in 2023, according to the World Trade Organization.
If there’s any relief in this gloomy scenario, it is in India bringing down its trade deficit to $78 bn in FY24 from $121 bn in FY23. It has also been able to diversify its exports basket in the past decade, welcoming new sectors like petroleum, machinery, medicines and pharmaceuticals, electrical and electronics, automobiles and auto components, biotechnology etc., even though the traditional labourintensive sectors such as apparels and textiles, leather, gems and jewellery, and handicrafts are losing their sheen, affecting job creation.
Also, as economist Ajit Ranade, V-C, Gokhale Institute of Politics and Economics, says, “We have done well in services exports and inward remittances. We need to do better in our merchandise exports.”
Most experts agree that India needs to develop more products of global standards at competitive prices and explore new markets. Post-Covid, there has been a growing sentiment in the developed world for new sources to host the Global Value Chain, or GVC, manufacturing, which China dominates currently. India is competing hard with ASEAN countries such as Vietnam, Indonesia, Malaysia as well as neighbouring Bangladesh to claim a slice of the pie.
Work is also being done to build an ecosystem for exports by digitising processes, addressing logistics costs and improving exports-related infrastructure. This includes constructing highways, expanding rail networks and dedicated freight corridors to improve freight movement. What India has had limited success in developing is a shipping line of global repute. “We are losing over $80 bn in freight remittances. Once we move towards $1 tn exports, it may go up to $200 bn. An Indian shipping line, getting 25 per cent of the business, can save $50 bn on a year-on-year basis,” says Ajay Sahai, DG & CEO, Federation of Indian Export Organisations.
There is a shift in policy too. Traditionally suspicious of free trade agreements (FTAs), the Modi regime had suspended most talks after 2014; in 2019, India walked out of the Regional Comprehensive Economic Partnership. Now, India has decided to focus on FTAs with trade-positive economies. If in 2021 it signed the Comprehensive Economic Cooperation and Partnership Agreement with Mauritius, in 2022, it inked a similar deal with the UAE, and this year, with the EFTA bloc. ■
We lose over $80 bn in freight remittances. If we reach $1 tn exports, it may go up to $200 bn. An Indian shipping line, getting 25 per cent of the business, can save us $50 bn year-on-year -AJAY SAHAI, DG & CEO, FIEO