NITI Aayog’s Trade Watch Report

Why in News?

• India’s trade situation is shaped by global geopolitical tensions, including the US-China trade conflict.
• NITI Aayog’s Trade Watch Report delves into India’s trade prospects, particularly its limited success in the ‘China Plus One’ strategy, and explores the opportunities arising from global disruptions.
• With a focus on improving competitiveness, trade policies, and market diversification, India is poised to benefit from changes in global trade dynamics, especially due to the proposed US tariffs on China, Mexico, and Canada.

Key Findings from the NITI Aayog’s Trade Watch Report

• Limited Success in ‘China Plus One’ Strategy:
  • India has struggled to capitalize on the China Plus One strategy, where businesses diversify supply chains away from China. Countries like Vietnam, Thailand, Cambodia, and Malaysia have outpaced India, benefiting from cheaper labor, lower tariffs, and proactive Free Trade Agreements (FTAs).
• Impact of Trade Fragmentation:
  • The US-China trade war and export control measures have fragmented global trade. As the US restricts exports to China, it creates a gap that India can fill, particularly in high-tech materials and manufacturing sectors, where India currently holds a minimal global trade share.
• Southeast Asia’s Growing Influence:
  • Southeast Asian nations are seeing strong export growth due to favorable trade conditions. India must enhance its competitiveness through infrastructure improvements and policy reforms to capture a larger share of this market.

Opportunities for India

• US-China Trade Conflict – A Double-Edged Sword:
  • The ongoing US-China trade conflict creates opportunities for India. US tariffs on Chinese goods may open up space for Indian products, particularly in manufacturing sectors previously dominated by China. However, India’s current share in key global sectors is low, highlighting significant untapped potential.
• US-India Trade Relations:
  • The US is India’s largest trading partner, with immense growth potential. As the US seeks to diversify trade away from China, India could fill the gap by increasing exports in various sectors, strengthening its position as a key global player.

Challenges India Faces

• Vulnerabilities in Iron and Steel Industry:
  • India’s iron and steel exports have faced a significant decline, with a 33% drop in Q1 FY25 due to oversupply from China and weak domestic demand. The EU’s Carbon Border Adjustment Mechanism (CBAM), which imposes carbon taxes on steel and cement, poses additional challenges to India’s competitiveness in these sectors.
• Tariff Policy Balancing Act:
  • India faces a delicate balance in managing tariff policies, particularly with proposed hikes in steel import duties. Overprotection could harm domestic industries by reducing competition, while the global oversupply of steel needs careful management.

Recent Developments in India’s Trade Policy

• Interest Equalisation Scheme:
  • Aimed at MSME exporters, this scheme provides cheaper access to rupee credit for pre-shipment and post-shipment activities, improving the competitiveness of Indian goods in global markets.
• Remission of Duties and Taxes on Exported Products (RoDTEP):
  • RoDTEP aims to neutralize taxes and duties on exported goods, making Indian products more competitive internationally by reducing export costs.
• Export Promotion Capital Goods (EPCG) Scheme:
  • This scheme allows duty-free imports of capital goods for boosting domestic production capacity, thus enhancing export competitiveness.
• Trade Facilitation Efforts:
  • India’s score of 93.55% in the 2023 UNESCAP Global Survey reflects significant progress in trade facilitation. The Trade Connect e-Platform provides MSME exporters with a single-window platform for real-time trade information and market access.

Prospects for India’s Global Trade

• Impact of Proposed Trump Tariffs:
  • Proposed US tariffs on Chinese, Mexican, and Canadian goods could provide an opportunity for India to increase its export market share. By capitalizing on trade diversions, India can expand its global presence, particularly in sectors affected by high tariffs.
• Diversification and Market Expansion:
  • India must focus on diversifying export markets and products to reduce its reliance on traditional markets like China and the EU. Proactive engagement with new trade partners and regions will ensure growth and global market penetration.
• Positioning as a Neutral Trade Partner:
  • Amid ongoing geopolitical tensions, India can position itself as a neutral, attractive trade partner, strengthening its global trade standing and fostering international collaborations.

Way Forward for India’s Trade

• Leverage Geopolitical Shifts:
  • India should capitalize on the disruptions created by the US-China trade conflict to increase its market share in sectors where China’s dominance is being undermined.
• Enhance Competitiveness:
  • Address sector-specific challenges like the decline in steel exports, focusing on innovation, sustainability, and compliance with global standards (e.g., CBAM) to stay competitive in international markets.
• Diversify Export Markets:
  • India needs to explore new markets and product categories, reducing dependency on traditional trading partners and exploring emerging markets in Africa, Latin America, and Southeast Asia.
• Strengthen Trade Facilitation Mechanisms:
  • Improve digital platforms and provide better policy support to streamline export processes, especially for MSME exporters, ensuring that India remains competitive in global markets.
• Pursue Proactive Trade Policies:
  • India should aggressively pursue new Free Trade Agreements (FTAs) and strategic partnerships to enhance its global trade relations and position itself as a key player in the evolving global trade order.