The imperative to do so has become pressing as India sold some US $ 437.11 billion worth of merchandise goods to the rest of the world in 2023-24, about 3.1 per cent less than what it managed to sell a year ago. Along with services exports, India’s total sales to the world account for nearly 23 per cent of its GDP. 

Any effort to push India’s GDP growth will quite naturally have to focus on both domestic production and consumption as well as efforts to sell more to the world. 

“Our policies have to be first re-oriented to cut costs that producers are incurring – whether in terms of ease of doing business, turnaround time at ports.  We of course need to look at the trade deals which are already on the table – whether it is the India-UK or the EU-India trade pacts. But the biggest issue is how to make our exports competitive,” pointed out Biswajit Dhar, former Director General of the Research and Information Systems for Developing Countries.

Trade Imperatives: Cut Costs, Improve Productivity

India’s average turnaround time (time taken between the arrival of a ship and its departure) at all ports is over 27.84 hours, ranging from 17 hours at New Mangalore to 84 hours in the Kolkata Dock system. This compares unfavourably with global standards – Japan has a turnaround time of about 8 hours, China and South Korea 16 hours, while Vietnam takes 19 hours.  

India’s policymakers are however concentrating on the slew of trade pacts which are in the works. The dilemma is how much concessions in terms of tariff cuts and market access that India can give. Though India’s average tariff now stands at 18 per cent, the effective import tariff (customs duty as a percentage of total imports) is below 4 per cent, mainly on account of zero or low tariff on most products which are used as inputs for exports. 

India’s ability to cut tariffs is limited as the nation also wants a protective wall for manufacturers who may otherwise be thrown out of business by a wave of cheap imports from more efficient or state-subsidised manufacturers such as China. 

Carbon Tax, Dilemmas Over Mechanisation

“We also have to see how we can make our manufacturers compliant with new norms such as the EU’s Carbon Border Adjustment Mechanism (CBAM) and labour standards as well quality standards which has been an issue for Indian pharmaceutical and Masala making companies,” said Dhar. 

India’s labour productivity or GDP per hour worked also remains a major worry. According to ILO’s 2023 labour productivity rankings, India scored low at US $ 8 per hour, compared to Brazil’s US $ 17, Russia’s US $ 30, China’s US $ 15 and Vietnam’s US $ 10. Developed countries like Sweden, USA, scored US $ 70 per hour. Whereas countries such as South Korea and UAE had US $ 42 as their labour productivity per hour.  

Labour productivity can be improved by better training, higher mechanisation and faster or better process management among other things. However, training comes at a cost and much of India’s export sector is formed of small businesses who can hardly afford such training programmes. 

Mechanisation and use of artificial intelligence to speed up processes has its own dilemma – what to do with the surplus labour generated. In the absence of a institutionalised safety net, large scale lay-offs could cause unrest and social conflict.   

What worries mandarins running India’s trade ministry which works out of Vanijya Bhavan at the corner of New Delhi’s Man Singh and Akbar roads, is that India’s three traditional markets – the US, European Union (EU) and ASEAN, which account for about 45 per cent of its trade – have reported shrinking or flat demand for Indian merchandise. The only two major markets where India has posted good growth have been the Gulf where Indian exports posted a 9.8 per cent growth and China which posted an 8.8 per cent growth. 

Poor Perception About US Economy Hits Trade

India shipped merchandise worth US$ 77.51 billion in 2023-24, according to Exim Bank data reported by the Ministry of Commerce, a tad below last year’s exports of US$ 78.51 billion.  

The USA, India’s top export destination for many decades, hasn’t been doing too well. The US economy grew last quarter at its slowest pace in two years as consumer and government spending cooled amid a sharp pickup in inflation. The US GDP grew at a 1.6 per cent annualized rate in January-March 2024.

What makes it worse is public perception which seems to believe that the US economy is in recession. A Harris-Guardian poll found that 55 per cent of American citizens believe that the economy is shrinking.  

Public perception about a poor economy usually takes its toll on consumption and that often hits imports, especially if they are what the world believes to be luxury goods. India’s biggest export to the US – gems and jewellery – declined by over 17 per cent from US$ 12.81 billion in 2023-24 to US$ 10.16 billion in 2023-24 for instance. 

“The US economy’s growth has been propped up by stimulus … while the EU - our other big market - has been going through difficult times, it's quite natural we do need to search for new markets as the weightage of these two big players is nearly 35 per cent of our exports,” said Biswajit Dhar.

The Slow EU Trade Story

A slowdown in the 27-nation European Union saw its economy growing by just 0.3 per cent after a flat zero growth in the last quarter of 2023. India’s merchandise exports to the region grew by just 1.46 per cent to US$ 75.93 billion. 

India offset weakening sales of its staple products – gems and jewellery, textiles, leather, pharmaceuticals and organic chemical – exports by increasing sales of refined oil and other mineral fuels by nearly 23 per cent.

Many newspapers in the continent have been claiming much of India’s refined fuel exports were based on the country’s rising crude imports from Russia and that EU has been buying Russian oil through India after banning its import. 

Though India, in a bid to take on the China challenge, has reached out politically to Western allies including the US, Japan and the EU, the economic relationship hasn’t been mended in the same manner, at least with the EU. 

A trade deal between the EU and India, which has been long delayed seems still out on a limb with many technical issues related to services and automobile trade and visas for movement of people remaining sticking points. 

ASEAN: Trade Deficit, Dip In Exports

ASEAN, a ten-nation economic compact in what used to be called Indo-China has become one of the world’s most important trading partners for almost all nations in the world. 

Its economy is not in the slowdown mode that the West is in but has slowed down from the heady days of the late 20th century. Except for Vietnam, Indonesia, and the Philippines, all major ASEAN nations reported below 5 per cent GDP growth rates in the fourth quarter of 2023. 

However, India’s refusal to join the RCEP in 2019 has queered the trade pitch, according to analysts. Cheaper replacements from RCEP countries such as China, Japan, Korea, and Australia have taken over the space for Indian exports resulting in a dip of 6.35 per cent in India’s exports to ASEAN during 2023-24 which had stood at US $ 41.2 billion. 

Automobiles, refined fuel and mineral oils, fish and fish products, and textile sales dipped as competitors who are members of RCEP could sell at lower rates as they faced lower duties.  

However, other trade analysts argue that the India-ASEAN trade pact was skewed favouring the trading bloc, which increased its exports to India without commensurate benefits to India. 

“India’s exports to ASEAN were US$ 25.62 billion and imports stood at US $ 30.60 billion in 2010-2011, while in 2021-22, exports had risen to US $ 44 billion and imports bloated to US$ 87.58 billion,” a senior commerce ministry functionary said. 

“There is a case for reviewing and reworking some of our trade deals. While all Free Trade pacts encompass some give and take, we can’t give away too much while getting too little,” agreed Dhar. 

The Way Forward

Foreign trade policymakers believe that the West’s desire to de-link itself from the supply chains created by the Chinese is likely to help India. However, many analysts dispute this and believe much of the gains have gone to countries like Vietnam, Mexico, Canada and Taiwan.

However, India still has time to make good its deficiencies and may be able to play catch up there. Other trade policy analysts believe that the way forward is not to depend upon the munificence of its trade partners opting out of a China addiction, but to see what they buy most and try to see if India could get into those slots.

“For example, we sell tea as a commodity. The world at large and our European customers especially want blends like English breakfast, Earl Grey, teas infused with Chamomile or Cinnamon, we need to get into that act,” pointed out independent tea marketing consultant Sovan Sircar.

India’s trade mandarins are looking at the top goods by sale that our key trading partners buy and trying to guide chambers of commerce to get member companies to bid for those areas. “For instance, they buy nearly US $ 80 billion worth of vehicle accessories. Can we push up sales there? What quality and other standards do we have to adhere there? If the freight is too high, should we advise our firms to set up bases in Mexico or Brazil? This is what we need to look at,” said a top commerce ministry official.

At the same time, Dhar pointed out India, as a country should look at which states of USA import products that we sell or can sell and try and do trade promotion there. California, Texas, Illinois, Michigan, New York and New Jersey are among the top ten importers within the US. “Maybe we should have trade officers working there?” he asked