2016, marked by Donald Trump’s presidency, shook India’s economy in an unprecedented way. Simultaneously, India was navigating its own shift with demonetisation, similar to the liberalisation reforms of 1990s in terms of impact.
While it was tackling black money in the economy, international relations were being reshaped by Trump’s Twitter account or unpredictable foreign policy. India suddenly found itself presented with new, unexpected opportunities, particularly as Trump prioritised strategic ties with India as a counterbalance to China's growing influence in the Indo-Pacific region. However, in retrospect, India may not have been fully prepared to capitalise on these openings, underscoring the importance of readiness and adaptability in a rapidly changing global landscape.
Initially, the US imposed a 10 percent tariff on a wide range of Chinese chemical products, which increased to 25 percent by May 2019. During this period, India’s total chemical exports went up from $32 billion in FY16 to $45 billion in FY19, a marked 11 percent compound annual growth rate (CAGR) in three years. Similarly, exports of engineering goods increased at a CAGR of 11 percent from $57 billion in FY16 to $79 billion in FY19, and performed well specifically in the machinery and equipment, and transport equipment categories. Although these initial gains offered India some opportunity, the scope expanded significantly in 2018, with higher US tariffs on Chinese plastics, semiconductors and electronics. Further tariffs were expanded to other areas such as consumer goods (furniture, handbags, luggage and textiles), building materials, seafood and agricultural products, tyres, leather goods, smartphones, toys, etc., where India could have potentially risen to be the next leader. However, it struggled with domestic priorities and consumption gaps—India was not ready to capitalise on these.
Also read: World Bank calls upon India to lower tariff barriers to boost exports
Despite advantages like cheap labour and production costs, the country’s export remained modest and the macroeconomic landscape did not align with the potential to become a leading global supplier at that time.
India’s limited success in completing free trade agreements(FTAs)—only 13 compared to China’s 24, Japan’s 22, South Korea’s 22 or Singapore’s 27—stems from cautious policy choices and unfavourable experiences. Previous FTAs led to trade imbalances, with higher imports than exports, making the Indian economy vulnerable to global shocks. This approach has since shifted. Significant strides have been made in enhancing the country's global export competitiveness over the past five years, driven by deliberate policy interventions and industry reforms.
One notable initiative has been the production-linked incentive (PLI) schemes aimed at elevating sectors such as mobile phone manufacturing, IT hardware, auto components and renewable energy. By November 2023, over $12.5 billion flowed in as investments into sectors supported by PLI, highlighting robust industry confidence and a deep commitment to fortifying domestic manufacturing capabilities. For example, the electronics manufacturing sector, a pivotal beneficiary, achieved a production value of Rs 2.04 lakh crore, with exports nearly doubling in two years from $16 billion in FY22 to $30 billion in FY24. PLI, coupled with the "Make in India" initiative, not only sought to bolster domestic production but also aimed to reduce India's dependency on critical imports, particularly in sectors such as pharmaceuticals and electronics. For instance, reports indicate a notable 60 percent reduction in telecom sector imports, with domestic production of active pharmaceutical ingredients making significant headway.
However, India's strategy to enhance its manufacturing sector and global trade competitiveness extends beyond the PLI scheme. Initiatives such as a manufacturing tax holiday and efforts to streamline processes reflect its intent of improving its standing in the ease of doing business rankings. The emphasis has also gradually shifted towards high value-added manufacturing, evident in the new foreign trade policy, which seeks to boost India's trade through measures such as the internationalisation of the rupee, digital transformation, collaborative synergies and ongoing policy recalibrations. In pursuit of efficiency, India also plans to consolidate export promotion activities under a single trade body, replacing the current multiple export promotion councils. Furthermore, the upcoming Semicon 2024 initiative underscores India’s ambition to emerge as the next semiconductor hub of the world, strategically positioning itself to benefit from the global China plus one strategy. In parallel, the services sector has flourished, with a massive increase in global capability centres contributing to the country’s exports growth.
Also read: How to pivot trade policy to make India a global export hub
Will India get lucky again with a global opportunity?
India’s economic resurgence hinges on its readiness to capitalise on the second wave of global opportunities. The blend of steady ‘baby steps’—through policy reforms, infrastructure development and manufacturing growth—coupled with ‘giant steps’ in emerging industries such as semiconductors and renewable energy suggests that it is poised to seize these opportunities. With continued commitment, India stands a strong chance of gaining broader economic traction and securing a more prominent position on the global stage.
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