Developed countries, like the USA and EU, have shown declining import trends. The spurt in imports in 2022 now seems to be an expression of post-Covid pent-up demand. This consumption demand did not sustain and led to stockpiling and reduced import demand in 2023. 

In 2014, world merchandise exports were around US $17 trillion, and rose to US$ 18 trillion in 2018. Post-Covid, merchandise exports exceeded US$ 22 trillion in 2022. The decline in 2023 suggests over-consumption in 2022.

As India set a grand target of US$ 2 trillion in exports and US$ 10 trillion in GDP by 2030, the question that arises is what are the challenges India is now facing, and what are the possible strategies to achieve these targets? 

Indian Exports Confront Global Headwinds

Indian exports had been volatile in the last decade, even before the Covid pandemic. Overall, its trend matches with the trend of the world and of China's exports. Other BRICS nations (except China) showed a flat trend between 2014 and 2023. 

The USA and the EU, the largest importers from India, also displayed a flat trend in imports indicating no big spurt in demand from these markets. Rising protectionism is making the Indian exporters’ job harder. The rise of US tariffs on Electric Vehicles (EVs) to 100 per cent bears testimony to that.

President Biden asserted that the future of EVs will be “Made in America”. The EU Competition Chief Margrethe Vestager noted that European companies are making only 3 per cent of solar panels installed in the region. 

Fear of China in the developed world is the new justification for bringing up protectionist measures. However, the fact remains that these are and will in the future impact the emerging economies, including India, as well. 

However, emerging economies themselves are also resorting to protectionism. Sometimes, their protectionist measures are retaliatory, at times they are also mere devices to defend local industry from being wiped out. Brazil, Mexico and Chile have imposed prohibitive tariffs on steel imported from China. Today, this is against China and tomorrow it well may be against other developing economies, including India. 

Does it mean that the world will embrace higher costs of production? How far will demand be sustainable with higher prices of products? 

As the world economy is abandoning the virtues of globalisation and embracing the vices of protectionism, is a world market of high prices and low demand an eventuality? 

Resurgence Of Localised Industrial Policies And Supply Chains

The US-China trade war and subsequent pandemic, popularised the idea of restructuring the supply chain of global production. This is both a challenge and an opportunity for India. 

However, the restructuring of the global value chain has become complicated first due to the Russia-Ukraine war and then Middle-East armed conflicts. The  subsequent disruptions of the popular trade route through the Red Sea, made this worse.

Multinational Companies are reorganising their supply chains, but unfortunately, most of them are giving India a miss while planning their supply chain, preferring other countries with better infrastructure or lower cost of production or higher productivity. 

Developed countries are now pushing for a resurgence of industrial policies through shifting existing subsidies from trade to industries. They are also bringing in innovative policies which may have an undertone of protectionism. 

The US policies such as the Inflation Reduction Act (IRA) and CHIPS and Science Act (CHIIPS), the EU’s effort to bring environmental 'taxes' such as Carbon Border Adjustment Mechanism, a range of programmes for attracting investments in Germany, Japan and South Korea are a big challenge for Indian exports in the coming days. 

These incentives or subsidies are designed in WTO-compatible ways. However, the current logjam at WTO on several issues, including the stalling of dispute settlement mechanisms, has created a major roadblock for emerging economies to increase their exports. 

Five Broad Strategies To Achieve US$ 2 Trillion Exports

·         Bringing synergy between trade and industrial policy

·         Identifying products and services with growth opportunities

·         Creating international Indian brands

·         Helping SMEs to expand and exploit economies of scale

·         Growing skill and productivity

Taking the cue from developed economies, it is now imperative to find the common space between Trade and Industrial policy. The end result of such an endeavour will depend upon how innovatively Indian industry is supported. 

The policymakers need to identify high-potential products/services and champion companies. At the trade agreement negotiations, an additional push to improve the market access of these companies is required. 

Indian economy must move from volume-driven to value-driven trade. That needs a process of creation of international brands for Indian products and services. Indian companies in sectors like apparel, leather, food processing, jewellery, and electronics, can get immensely benefitted by design and marketing innovation. 

Indian labour-intensive sectors are dominated by small players. They suffer from a lack of economies of scale. Hence, the effort should be to increase their scale of production, by bringing a good mix of sector-specific skilling and new capital. 

During a recession, labour-intensive small and medium export companies suffer large-scale unemployment. Helping them to expand and find an optimal mix of labour and capital can buffer such employment shocks. Increasing the scales of operation may also help these companies in finding sustainable global export markets.

Last but not the least, India must strive to uphold the spirit of WTO with the help of like-minded countries for its proper functioning. Bilateral and regional trade agreements should also be negotiated properly as many of the social and environmental standards incorporated in these new-age trade agreements may backfire as partner countries are likely to use those as indirect trade barriers. 

Biswajit Nag is a professor at the Indian Institute of Foreign Trade in New Delhi. Views are personal.