USA is India’s single largest export market, while China is the largest market for the country’s imports. While the trade war between US and China presents an opportunity for India, the question is whether the country is working in the larger scheme of things
The Indian government has sensed a good opportunity and has been working on oiling the exports machinery to take advantage in the ongoing stiff trade war between the United States of America and China. But is it working in the large scheme of things?
Although the tariffs imposed by China and US on each other is perceived as an opportunity for India to increase its share in world exports, there has not been a perceptible shift in production from China to India yet. The relocation, if any, has been limited so far.
Also read: How US-China trade war affects my nation
The country’s imports growth contraction by 3% (to $331 billion) in the first 8-month period of 2019 attests to that.
The production relocation from China has been mainly to other Asian economies, that is Vietnam, Philippines, Taiwan and Thailand.
Even as the recent corporate tax rate cuts (to 25.17% from 30% excluding surcharges) does makes India’s tax structure competitive, other depilating shortfalls on the infrastructure front (energy shortages, lack of adequate transport and export infrastructure), laws and regulations, high costs of logistics and transactions, delays and costs due to procedural and documentation bottlenecks among other factors have been limiting the country’s export competiveness and growth.
India’s rank in world trade (goods and services) has improved from 16th position to 11th in the last 10 years. However, the country’s share in global trade continues to be low and was around 2.4% (2018). India’s share in world merchandise exports is 1.7% and 2.6% in case of imports.
India became a part of the ongoing trade wars when in June 2019, the US withdrew the preferential trade treatment (under the generalized system of preference which did not charge duties on various imports) for India and imposed tariffs on over $5 billion of imports from India. This led to imposition of retaliatory tariffs by India.
The country’s trade in 2019 presents a mixed picture.
Imports have contracted and exports have increased marginally. India’s exports are influenced predominantly by global demand. The weakness in global demand reflects on India’s exports. India’s export growth in the first 8 months of 2019 (Jan-Aug) at 1.4% ($219 billion) was significantly lower than the 11.8% growth in the same period year ago.
Despite the sharp decline, India’s cumulative export performance so far in 2019 stands out as the country witnessed positive growth while a majority of economies saw their exports contract or stagnate. This could be viewed as India’s growing role in the global value chain.
USA is India’s single largest export market, while China is the largest market for the country’s imports. Items such as engineering goods, automobiles (including auto components), gems & jewellery, chemical and petroleum products dominate India’s exports and these items which are higher up in the value chain are dependent on external demand. India features among the top 10 exporters of agricultural products.
India’s exports to 9 of its top 15 exporting economies (which account for nearly half of the country’s exports) contracted in the first 8 months of 2019.
Only exports to Singapore and Saudi Arabia have recorded higher growth in 2019 when compared with year ago. Exports to Germany contracted by 3% as key commodities like engineering goods, leather and textiles recorded contraction in exports from India. These 3 commodities account for almost 50% of total exports from India to Germany.
The significant contraction in exports to Vietnam has been on account of the lower exports of contraction of meat, marine products and textile. These products account for nearly 40% of India’s exports to the country.
Given that India is playing an increasing role in the global value chain, the country can emerge as viable options for companies seeking to shift production. The government has announced a series of measures to incentivise and facilitate exports which is expected to benefit exporters.
However, if the country is to grow its export potential, diversification across destinations, goods and services along with improvement in quality and ability to cater to the evolving global requirements while addressing the structural, administrative and procedural constraints become essential. India also needs to forge strong and beneficial FTAs to deepen intra-regional trade with partner countries.
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Last Updated Oct 2, 2019, 12:25 PM IST