By Prerna Prabhakar, Sanjay Kathuria & TG Srinivasan
The global economy is facing significant headwinds due to the uncertain tariff policies of the US administration under Donald Trump. These policies build upon the protectionist stance adopted during his first term, particularly targeting China.
Amidst this evolving landscape, India finds itself at a critical juncture, facing both challenges and opportunities. One concern is the possibility of Chinese exporters diverting excess supply to markets, potentially undercutting Indian exporters through aggressive pricing and dumping, and posing a challenge to Indian suppliers in their home turf.
Although India did not benefit much from the first round of the US-China trade wars that began in 2018, could it position itself better this time to benefit from the ongoing shifts in global trading patterns?
To achieve this, India must address structural inefficiencies and reform its policy and regulatory frameworks, as underscored by a recently released Competitiveness Index that ranks India as the least competitive among key Asian peers — raising concerns about its readiness to capitalise on the shifting global trade dynamics. Malaysia, Vietnam, and Thailand demonstrate strong competitiveness fundamentals and top the index rankings.
The index offers a forward-looking snapshot of export potential, measuring six core pillars of competitiveness — and India falls short on most, signalling deeper challenges in scaling up its global trade game.
Labour availability is a relative strength, with India seeing the largest increase in workforce among the five countries. But this is offset by the lowest labour productivity. Innovation and research and development (R&D) are particularly weak. Indian firms rarely introduce new products or invest significantly in R&D. In contrast, Malaysia and Thailand lead on these fronts, enhancing productivity and global competitiveness.
Access to finance poses another challenge, with many Indian firms lacking credit or facing rejections. Land availability is a persistent issue, worsened by complex regulations and building norms that limit usable land and raise costs.
Demand conditions is the only pillar where India is one of the top scorers, largely because of its huge domestic market. But this large market is a double-edged sword. While it allows firms to scale, it reduces the incentive to export. Indian firms report the lowest foreign demand among their peers, in stark contrast to Vietnam and Malaysia’s export-oriented models.
Firm structure and regulatory bottlenecks further constrain India’s competitiveness. The analysis found that India has one of the highest levels of firm concentration among the selected countries. Often, a small number of firms often hold monopolistic or oligopolistic control over critical products. When these are raw materials, it leads to higher input prices for downstream sectors, ultimately undermining their competitiveness.
India ranks low on the regulatory quality pillar, with concerns ranging from corruption and tax complexity to inefficient licensing processes and judicial delays — issues that disproportionately affect small and medium enterprises.
India’s trade policy stance is perhaps the most problematic. High import tariffs and absence from key trade blocs like the Regional Comprehensive Economic Partnership and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership limit access to global value chains. Vietnam, by contrast, is a member of all major trade agreements and benefits from cheap inputs and preferential market access.
These gaps, highlighted by the Competitiveness Index, are echoed by industry voices. Indian firms acknowledge their limited investment in R&D and an overreliance on domestic demand. For instance, the apparel sector remains focused on cotton-based garments, even as global demand increasingly shifts toward synthetic apparel. This inward orientation hampers innovation, limits economies of scale, and delays quality upgrades. Additionally, restrictive labour laws create disincentives for firm expansion, encouraging businesses to remain small contributing to the persistent issue of a “missing middle” in India’s industrial landscape.
India’s position at the bottom of the Competitiveness Index reflects deeper structural issues, not just short-term problems. To rise through the ranks and capitalise on the current geopolitical window, India must go beyond reactive trade policy. What’s needed is a coherent competitiveness agenda — one that boosts productivity, reduces red tape, promotes innovation, and actively integrates India into global trade networks.
The writers are economists who focus on trade and competitiveness issues.
Disclaimer: Views expressed are personal and do not reflect the official position or policy of FinancialExpress.com. Reproducing this content without permission is prohibited.