The second term of Prime Minister Narendra Modi’s administration has navigated choppy waters on the trade front, from the pandemic which upended supply chains to tensions with China which led to a sharp inward turn. Global geopolitical fragmentation and the impact of the war in Europe, along with the surge in inflation worldwide, have made the global outlook dimmer for the next decade, making the future look uncertain. But India is poised to boost its outbound shipments in the years ahead as it aligns closely with its partners, becomes the key destination for businesses moving away from China and also emerges as a leader in the services sector.
The big promise
The ruling Bharatiya Janata Party had promised in its 2019 election manifesto that it would ensure faster customs clearance of international cargo by relaxing procedures and using technology. It had also promised to provide adequate financial and institutional support for exporters to build capacity and boost shipments. More generally, the party promised greater economic prosperity for the country.
The story so far
Trade and Commerce Minister Piyush Goyal held the strong opinion that the free trade agreements (FTAs) entered into by India in the previous United Progressive Alliance regime had not been good deals and went about signing new early-harvest deals and comprehensive trade pacts with economies all over the world. As of last count, several new FTAs have been signed while India kept itself out of the Regional Comprehensive Economic Partnership, leading to much opprobrium from the free trade school economists.
Modi’s regime also bolstered domestic industry by launching production-linked incentives in over a dozen sunrise sectors, raising tariffs on select imports and imposing antidumping duties for shipments from China. New standards and quality control are being brought in.
The government used the pandemic to usher in a raft of reforms to make life easy for medium and small manufacturers who form the backbone of the Indian economy and who also make up for a large chunk of exports.
The country also diversified its exports, especially of petroleum products. New destinations have been added even as the US and China continue to be the largest trading partners. Mobile handsets and electronic exports are recording the fastest growing exports numbers.
The boom in information technology and related sectors meant that even during the pandemic, India also grew its services exports, which hold promise for the future. The country’s overall exports in fiscal year 2022-23 jumped to $770 billion, surpassing the annual target set by the government, and services made up for nearly half of this figure.
Also read: Make in India, Atmanirbhar Bharat helped India become a key exporter of goods
The unfinished business
Now, with a new Foreign Trade Policy firmly in place, the country is aiming to boost exports to $2 trillion by 2030 through process re-engineering and automation to facilitate ease of doing business for exporters.
The policy, which unlike earlier does not come with a sunset date and will be updated on the go, also focuses on emerging areas like dual-use high-end technology, facilitating e-commerce exports and collaborating with states and districts for export promotion.
Targets aside, India must do all it can to achieve the pole position for businesses and supply chains that are moving out of China. Apple and Tesla’s interest in India is good news but much more will need to be done to ensure that the country becomes a key part of global supply chains, from manufacturing to green energy and key inputs.
Its export sector must also be nimble enough to survive a world that may continue to see tumult, both economic and geopolitical, in the decade ahead.
Also read: How a slowing global economy risks India’s $2 trillion export aim
Talking heads
Finance Ministry’s Department of Economic Affairs:
“After witnessing strong growth in FY22, the pace of growth in global merchandise exports moderated in FY23, as persisting geopolitical tensions and monetary tightening induced recessionary fears have led to a decline in discretionary consumer spending across advanced nations.
“Yet several measures post the Covid-19 outbreak have been preparing India’s export to garner a larger global market share which should grow India’s export at a reasonable rate despite the slowing of global demand and growth.”
Upasana Chachra, Chief India Economist, Morgan Stanley India Company Private Limited:
“India's growth model is reorienting with a shift towards higher export market share, helped by a confluence of supply-side policy reforms and a move towards supply chain diversification. While this will help the export of both goods and services, the gains are being reflected swiftly on the services side.
“Market share for export of services has risen by 120bp (basis points) vs. pre-pandemic, while that of goods has risen more slowly by 10bp. In the near term, we expect service exports to continue to grow above goods exports, especially given the uncertain global growth environment for FY24. However, the tailwinds of lower global commodity prices alongside healthy trends in services exports improves the current account deficit outlook, and we expect India's current account deficit to narrow to 1.1 percent of GDP in FY24 from 1.9 percent of GDP in FY23.”
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