FTAs With Gulf, ASEAN Will Power Our Foreign Trade: Ajay Sahai

Q: How was the first half of the fiscal for the country’s trade?

A: India's cumulative exports during April-September 2024 is estimated at $393.22 billion, compared to $375 billion in the corresponding period last year. The estimated growth is 4.86 per cent. Based on this, exports will come to a little over $800 billion for the fiscal.

Q: So how would the emerging geopolitical situation impact trade?

A: It's clear that if the situation worsens, it will have some impact on India's overall trade. We'll still have a $825 billion trade target, but we'll need to wait and watch the evolving situation. We're not very hopeful of an increase in imports.

We also need to wait for the crude prices to move. I expect the US to impose more sanctions on Iran, which will affect us. The RBI has budgeted the oil price at US$85 per barrel for the current fiscal. With the price already hovering at around US$80, if it spirals out, we'll face serious problems. 

Q: How much has the West Asia crisis impacted India’s trade?

A: India's bilateral trade with the Gulf Cooperation Council (GCC) countries is a sizable $200 billion. India has a Comprehensive Economic Partnership Agreement (CEPA) with the UAE. We're working towards an agreement with Oman, and will soon have Free Trade Agreements (FTAs) with other GCC countries. The West Asia crisis will have an immediate impact on these FTA discussions. A lot will depend on the role Saudi Arabia plays. At the moment, I can say that trade with the GCC countries will remain under pressure. If Iran gets affected, our trade via the Strait of Hormuz, which connects the Persian Gulf and the Gulf of Oman, and our LNG supply, will be impacted, pushing up costs.

The Middle East crisis has also impacted India's freight and insurance costs. Of late, the global demand has softened, so I had hoped that our costs would come down, but the Red Sea crisis has pushed our costs up. We are moving our goods via the longer Cape of Good Hope route. Some items, like high-value-low-volume stuff, are being sent via air. But since many air freight routes go over Ukraine and Iran, and airlines are avoiding these, operating costs are getting pushed up too. 

Q: Is trade movement via the Red Sea still a problem?

A: We've been importing oil from Russia via the Red Sea. The world community believed the Red Sea crisis would be temporary. But with Iran likely to get affected, this may impact global goods movement for a long time, with higher freight rates involving more logistical challenges. It will be a huge setback for India and the world.

Q: What steps are the government taking to ease the problems faced by India's exporters?

A: These are market dynamics. The government has a limited role in international conflicts and crises affecting trade. It is working on a project to start our own shipping lines. India has no shipping line company barring the Shipping Corporation of India, which alone has 10 per cent of India's share in global trade. Our overseas transport freight, which includes air and sea transport, was $120 billion in 2022, of which $75 billion is via sea. Even if our companies can grab a 25 per cent of India's market, we may have a $2,025 billion share in global trade. The government is also increasing the number of available containers to augment supply. Launching our own flag carrier will bring down charges for our exporters, while we'll end up spending less forex.

Q: Can Indian exporters reach $2 trillion in foreign trade by 2030? 

A: We are growing at around 8 per cent so far, which is a healthy growth rate, but to achieve $2 trillion annual trade, we need to grow by 12 per cent a year, which is a challenging task. 

Some factors are favourable to India now, like the China Plus One policy, where other economies want to depend on one more economy besides China. Some companies are reducing their procurements from China, and deploying these resources in India. I know of companies that reduced their procurements from China, from 50 per cent to 30 per cent.

The US is making an effort to realign its value chain to bypass China. We have the capacity, potential and resources to play an important role here. Besides, the world is looking for a resilient supply chain that is sustainable, diverse and safe from the implications of war and other factors. This is where India can step in.

Steps taken under Performance Linked Schemes (PLIs) schemes have also helped, be it in the production of mobiles, computers or other electronic parts. Pharma and Active Pharmaceutical Ingredient (APIs) are other areas where exports are rising, riding on technology and other value-added products, along with defence products. Technology and knowledge-driven sectors will help.

For us, areas of concern are labour-intensive sectors like leather, carpets, apparel, gems and jewellery that provide a large number of jobs. I worry if these sectors will be able to push that much growth. In five years, our share in sectors like apparel, gems and jewellery, has gone down. We need to bolster both the tech-driven sunrise sector and the labour-intensive sector. A trillion-dollar trade is not challenging, but labour-intensive export enhancement is. If we can do that, we'll succeed.

Q: What are the new markets and products India should explore for further growth?

A: In our export baskets, a big component is engineering goods, followed by petroleum, gems, jewellery and textiles. Soon, electronics will be a dominant sector. India's strength lies in electronics, electrical and auto components. India's export profile is also growing bigger with technical manpower. The tech and tech-driven sectors will have a much greater share in India's exports.

India has moved towards Northeast Asia, Australia and New Zealand. Its trade with Africa and South America has also increased. So far, there isn't enough purchasing power in African countries that could boost India’s exports to them, but we have been successful in shifting our exports from advanced to emerging economies in the recent past such as East African countries and Latin American countries like Argentina. As of now, Asia is our mainstay, with exports at around 50 per cent.

Q: What kind of opportunities could the new FTAs open up? 

A: Under our existing FTAs, instead of our exports growing, our imports have gone up. The reason is that we have signed FTAs with countries that have strong manufacturing, who took advantage of our higher tariffs. India is now looking at economies that have large export markets and complement, rather than compete with us in terms of products. This feeling is only seeping into the government of late, which is why we are looking at reworking our FTAs with ASEAN and other countries.

For example, our FTA with UAE. Here, we're not competing for manufactured goods. Meanwhile, w\e are buying coal and raw materials from Australia, which would make both our manufacturing and exports competitive.

Q: What kind of challenges could Indian exporters face to comply with EU's Deforestation Regulation?

A: Non-tariff issues will dominate global trade. There are countries that feel they can no longer regulate trade via rules, licences and taxes. A new mechanism is evolving as a result. But we have to sensitise our industry in a way that when the regulation EU Deforestation Regulation comes into effect in 2026, our exports don't get impacted.

The EU regulation has two aspects — traceability and proof that deforested land hasn't been used for production. Our industry would be better prepared by the time this regulation is implemented.

Q: How has the Bangladesh crisis impacted India's trade?

A: The general perception is that restoration of normalcy in Bangladesh will take time. As a result, India's companies are getting benefitted, especially in the apparel sector, even though we are facing trouble procuring yarn and fabric, as Bangladesh's supply has fallen drastically.