India’s export strategies need review given geopolitical tensions

The skewed trade with China and India’s dependence on it for certain key goods must be a matter of concern given the continuing friction between the neighbours.

Economic superpowers have always been leaders in global trade. India has a long way to go on this front so its ambitions to secure a pivotal role in the world economy may take a while to become a reality. Raising exports is the way forward, and they have risen steadily in the past few years. But merchandise goods are lagging services. Even more worrying is that external headwinds are set to become spoilers this year. Exporters’ associations are upbeat about high growth in 2024-2025, but they may not have fully recognised the impact of geopolitical tensions on international trade.

On the positive side, even though merchandise goods exports fell by three per cent in 2023-2024, the combined exports of goods and services rose to $776 billion. The goal for the current year is $900 billion but much will depend on the external environment. As for goods trade, the dip from $451 billion in 2022-2023 to $431 billion in the last fiscal can be largely attributed to geopolitical fissures.

This scenario is likely to continue in the short term, despite frantic efforts for a ceasefire in the Hamas-Israel conflict, while the Ukraine war seems to stretch on endlessly. As a result, one of the biggest problems facing world trade is going to be logistics, with hostilities continuing in countries neighbouring the Suez Canal route. About 12-15 per cent of international shipping moves through the canal, and there is already considerable cargo diversion to the longer and costlier route via the Cape of Good Hope. There is little option as attacks on merchant shipping by Yemen-based Houthi rebels are continuing since 2023.

The delay in shipments moving from Asia to Europe and vice versa is bound to affect the costs and competitiveness of Indian goods being sent through this route. This is not the only element that will slow export growth. Equally potent factors are the recessionary trends that have continued for longer than expected in major developed economies. The European Commission expects growth in the European Union to touch only 0.9 per cent in 2024 even though inflation is likely to decelerate from 6.3 to 3 per cent this year. The United Kingdom by contrast, seems to have emerged stronger after three years of recessionary conditions; but whether demand will pick up strongly has yet to be seen. Among the developed world, the United States is the most conducive market right now, given its quicker recovery compared to others from the trough of the pandemic and the supply chain disruptions due to geopolitical fissures.

Even so, the US has been displaced as India’s biggest trade partner in the last fiscal with China having returned to that position after two years. Overall trade between the two countries is estimated at $118.4 billion, with imports vastly higher at around $101 billion, ensuring a large trade deficit. Efforts to curb imports and expand exports to our northern neighbour have yet to yield significant results.

The skewed trade with China as well as dependence on that country for certain key goods, such as pharmaceutical ingredients, lithium, and industrial products, must be a matter of concern given the continuing friction between the two countries. There has been an over 8 per cent rise in exports and a three per cent decline in imports last year, but this is not enough to reduce the trade imbalance in any significant manner.

During the pandemic, it was found that some bulk drugs and intermediates were available only from China. It was then expected that efforts would be made to ensure indigenous production of such chemicals to prevent a similar crisis. Yet drug imports from China continue to rise, even though India is a major producer and exporter of pharmaceuticals. Lessons from the pandemic are yet to be learnt.

As for areas of strength,  India has an edge in agro exports, but a sustained presence in world markets is essential. Export policies cannot be erratic based on domestic availability issues, and quality standards must be kept high. Controversies like the recent one over spices can adversely affect India’s international brand image. The other segment of phenomenal growth is mobile phones. The production-linked incentive scheme for the electronics sector seems to have had a dramatic outcome on exports.

We need similar policy shifts in other sectors to ensure that more products can become globally competitive. A long-term strategy needs to be worked on factoring in the geopolitical tensions; this will help India emerge as a consistent and efficient supplier of merchandise goods to the world.

(Sushma Ramachandran is a senior journalist.)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.