India confronts enormous trade issues, including the global economic slump, rising protectionism, delayed mega-trade accords that may be revived in the future, and, probably most importantly, its own internal concerns. Foreign trade is more complicated than a country's domestic trade. India confronts enormous trade policy issues, including the global economic slump, rising protectionism, delayed mega-trade accords that may be revived in the future, and, probably most importantly, its own internal concerns. In this article, we will study different Trade issues of India, which are important for the UPSC Examination.

Trade Issues of India

• By 2025, India hopes to triple its exports to $1 trillion. Indian exports for the April-June 2021 period reached an all-time high of $95 billion, an 85% increase year on year, indicating that the country is on the right track in pursuit of this dream.
• This is a remarkable accomplishment, given that this time period marked India's battle against a deadly second wave of Covid-19.
• While this is encouraging news, it remains difficult for Indian exporters to ship their goods overseas. Many of the challenges they face have been present for years, if not decades.
• Unless these issues are addressed urgently, India may never realize its full export potential.

Let’s discuss the challenges faced by the exporters

Inadequate Infrastructure

• India's infrastructure remains its weakest link. In 2019, India ranked 68.1 out of 100 countries based on the quality of their infrastructure, according to data firm Statista.
• To put this in context, top-ranked Singapore received 95.4 points, while bottom-ranked Bolivia received 57.1 points, trailing India by 10 points.
• Infrastructure encompasses a wide range of industries, including power, communication, water, and waste management. However, transportation infrastructure is crucial for international trade.

India's underdeveloped transportation infrastructure causes many issues for exporters, the most serious of which are:

Congested ports

• The major ports of India are severely congested. This could be attributed to high cargo volumes, but infrastructure deficiencies such as container and equipment shortages, outdated navigational aids, a lack of technical expertise, and poor port maintenance are also to blame.
• Truck lines can stretch for 10 kilometers outside Nhava Sheva, India's second busiest port, on any given day. Turnaround time, or the time it takes a ship to enter, unload, load, and exit the port, is an important indicator of a port's efficiency.
• According to the Economic Survey 2020-2021, turnaround time at India's major ports averages 2.59 days, compared to a global average of 0.97 days. With 95% of India's trade transported by sea, clogged ports are a major hurdle to trade flow.

Congested Roads

• India's roads also carry a significant portion of the country's freight traffic (67% in 2017, as per the latest available figure). Because of its large population and poor road conditions, India's road traffic is among the worst in the world.
• Four Indian cities were among the top 20 in the TomTom Traffic Index 2020, which ranked 416 cities based on traffic congestion. Mumbai was ranked second, Bengaluru sixth, Delhi eighth, and Pune sixteenth. Road congestion causes significant losses in India.
• According to a 2018 report commissioned by cab-hailing company Uber, the cost of traffic jams in four Indian cities – Delhi, Mumbai, Bengaluru, and Kolkata – is $22 billion per year in terms of fuel consumption, productivity loss, pollution, and accidents.

Lack of Connectivity

• Landlocked states' exporters are hampered by a lack of connectivity to gateway ports. A shipment from a warehouse in Delhi to a port takes 46 hours, which is three times longer than in other countries.
• Poor hinterland connectivity plagues Bihar, Jharkhand, Himachal Pradesh, Uttarakhand, Jammu and Kashmir, and the North-Eastern states.
• The transportation of agricultural produce – one of India's top exports – is hampered by poorly constructed link roads connecting farms to main roads.

Outdated rail equipment

• The Indian Railways is one of the world's five largest rail networks, and it is ideal for transporting freight. On average, 8,479 freight trains transport three million tonnes of freight per day.
• However, India's rail network is hampered by infrastructural issues such as outdated equipment, the lack of a modern automated signaling system, and a rake shortage (a rake is a collection of coaches).
• As a result, loading delays, poor service, and overall inefficiency have occurred.

Low Credit Access

• Lack of access to trade finance and export credit is a long-standing complaint among Indian exporters. This is particularly true for Micro, Small, and Medium Enterprises (MSMEs), despite the fact that they account for nearly half of India's total exports.
• Indian exporters receive far less financial assistance than their counterparts in other countries.
• In 2018, export credit agencies disbursed $7.6 billion in funds to India, while China received $39.1 billion.

According to the Trade Promotion Council of India, the following factors prevent exporters from obtaining trade finance:

High cost of Finance

• Banks and lenders pay a high price to comply with various financial security rules, such as Know Your Customer (KYC), Anti-Money Laundering (AML), and Combating Terrorist Financing (CFT) (CFT).
• They frequently pass on the cost burden to their customers, increasing the cost of trade finance for small exporters.

High collateral

To obtain trade finance, an exporter must provide substantial collateral, which may be difficult for MSMEs. Furthermore, banks are hesitant to lend to MSMEs because they see them as a credit risk.

Complex Procedures

Exporters may be discouraged from pursuing trade finance due to complicated application procedures and extensive documentation requirements.

Lack of Information

Exporters frequently fail to apply for trade finance because they are unaware of the export credit schemes and products available to them, as well as the institutions that provide them.

Document-heavy process

• Dealing with unfamiliar buyers in foreign lands, different trade laws, and practices, and a plethora of documents all contribute to the complexities of exporting.
• However, the process in India is said to be more time-consuming and difficult than in many other countries, owing in part to a stringent documentation requirement.
• Each stage of the shipping process necessitates the preparation of a large number of documents by Indian exporters. These are the stages of pre-booking, booking, post-booking, and discharge.
• They must keep in mind that different types of cargo necessitate different types of documentation.
• Food and pharmaceutical products, for example, must be accompanied by health and safety certificates. It is also critical to plan ahead of time because certification authorities at Indian ports are not available 24 hours a day, seven days a week.
• While the number of mandatory documents for exports in India has been reduced to three – the Bill of Lading, Commercial Invoice with Packing List, and Shipping Bill – the list of additional documents can be lengthy.
• Furthermore, all paperwork must be filled out completely and accurately. Even minor document errors can cause delays and additional costs.

Trade Barriers

• Former US President Donald Trump referred to India as the "king of tariffs" at one point. In India, average import duty rates are higher than in most developed and emerging economies.
• This has prompted protests not only from countries that export to India (such as the United States) but also from Indian exporters who rely on imported inputs and raw materials for their finished goods.

The following are the tariff and non-tariff trade barriers that affect Indian exporters:

High Import Duties

• The World Trade Organization reports that India's Most Favoured Nation (MFN) applied import duty rate averages 13.8%, the highest of any major economy.
• According to a 2019 US government report, India has some of the highest import duties. It cites agricultural products as having a duty rate of 113.5% on average.
• Indian exporters are forced to mark up their final products because they pay a high price for imported inputs. As a result, they are less competitive in the global market.
• Because of high import duties on inputs such as synthetic fibers, Indian textile exporters, for example, lag behind their Bangladeshi counterparts.

Tariff inconsistency

• Aside from high tariffs, Indian exporters who import inputs must contend with frequent rate adjustments and tariff escalation. New duty rates are typically announced in the Budget, which is presented each February.
• The 2021 Budget proposed higher tariffs on a variety of products, including farm produce, electronic and auto parts, fabrics, chemicals, and plastics.
• Textiles, cement, electronics, and capital goods are among the industries most affected by rising tariffs.

Non-tariff barriers

• Regulatory compliances such as safety and quality standards and certifications, packaging, labeling, and testing requirements are examples of these.
• Restriction on the export of specific goods is another type of non-tariff trade barrier. Among these are restricted goods and items that can only be exported through State Trading Enterprises.
• Exporters must obtain special licenses and meet certain conditions in order to trade in such goods. Trade barriers increase the cost and time required by exporters.

Conclusion

Trade issues are a hurdle for the exporters to trade freely. The Trade policies are framed keeping these issues in mind and resolving these to maximize the trade and achieve a trade surplus. This will in turn help in achieving the current account surplus and improves the Balance of Payments scenario. Reducing trade issues is very important to achieve India’s goal of a $5 trillion economy.