A major source of policy concern is that India’s exports have been buffeted by adverse global headwinds. Although FY23 saw a modest 6.03% year-on-year increase in goods exports to $447.46 billion, this was largely due to double-digit growth during the first quarter. Barring a marginal uptick last November, it has been in negative territory from October to March due to the slowdown in global growth and trade volumes. Adverse conditions are likely to persist this year as well with the pace of expansion in trade volumes losing momentum to1.7 %, according to the WTO.
Protectionism and inward-looking regimes are currently in the ascendant with the worsening US-China trade tensionsand on-going efforts to decouple supply chains from the dragon. Friend-shoring and near-shoring are the new buzzwords to reduce risks to the supply chains as global trade gets increasingly fragmented into powerful regional blocs.
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The big question is how India seeks to position itself in this new world order so that the growth engine of exports drives the growth story. Recently, the government announced a foreign trade policy which is said to be dynamic and open-ended to accommodate the emerging needs of the time. There are ambitious targets of hitting $1-2 trillion—inclusive of services—of goods exports by 2030. But there is no roadmap to hit these targets especially when global prospects for trade remain clouded in uncertainty. Past efforts to make India a significant participant in world trade have only resulted in a stagnant 1.6% share of global exports.
Looking ahead, India’s biggest challenge is to deal with the powerful regional trading blocs like North America, European Union and in the Indo-Pacific region which has the 12-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership, Regional Comprehensive and Economic Partnership, and the putative US-led Indo-Pacific Economic Framework. Although the US is India’s largest trading partner, there is no free trade agreement with that country.
Negotiations are on for a deal with the EU but this is not easy considering India’s red lines on agriculture, including dairy products.The EU is also a leader in new generation FTAs and has concluded one with New Zealand with provisions that respect the Paris Climate Agreement and core labour rights, enforceable through trade sanctions as a last resort. India has no experience in dealing with such issues. It is also not a member of the CPTPP, RCEP and the trade pillar of the IPEF. The big question then is who willIndia trade with, to borrow a provocative title of a column by AmitaBatra of the Jawaharlal Nehru University.
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To be sure, trading more with the global South is a possibility but that accounts for only a fifth of India’s exports. If the country is not to be left out in the cold, there is no option but to consider joining the mega regional groupings in the Indo-Pacific region. While India has problems with a China-dominated RCEP, it has relatively greater comfort levels in dealing with the US. Rejoining the trade pillar of the IPEF should therefore be a priority to further its participation as a friend-shoring ally. Although the IPEF is only a bloc-in-the-making, the relatively greater attractions for India are that its two-way trade with the 13 individual members is similar to that of RCEP but with a much smaller trade deficit.