India’s Probable Strategy in a World Marked by Shifts in Trade Policies and Continuing Geopolitical Tensions
STORIES, ANALYSES, EXPERT VIEWS
The global economy is undergoing a significant transformation, marked by shifts in trade policies and continuing geopolitical tensions. These, writes Harsha Vardhan Agarwal (President, The Federation of Indian Chambers of Commerce & Industry - FICCI) “have led to heightened uncertainties, impacting not just trade but also financial markets and economic growth prospects."
Dependance on the US: With global trade dynamics evolving rapidly, “it could lead to a structural realignment of global trade with long-term implications for trade and investments. Businesses will have to weigh the short-term challenges as well as long-term opportunities. Industry has to re-strategise amid rising costs, disrupted supply networks, and asymmetric information. The United States is India’s largest export destination accounting for nearly one-fifth of India’s merchandise exports. Therefore, uncertainties in the tariff regime in this market severely impact the business of Indian exporters. For certain sectors such as marine, apparel, carpets, gems and jewellery, pharmaceuticals, auto components, and electronics, India’s dependence on the U.S. market is very high. Additional tariffs would erode margins of these exporters, particularly Micro, Small and Medium Enterprises (MSME)s and make their exports unviable.”
India specific strategy: Despite the global headwinds, “India stands to benefit with the right strategy. The global restructuring of trade offers India an opportunity to become an integral part of the renewed global supply chains. India needs a three-pronged strategy — to manage external shocks; to ensure domestic economic resilience and to leverage a window of opportunity to enhance its global exports…….”
First, “India has taken a proactive approach by engaging early in Bilateral Trade Agreement (BTA) negotiations with the U.S. Being the first to conclude such an agreement could give India a first-mover advantage….”
Second, “the conclusion of an FTA with the U.K. is a huge positive. India must now pursue other key FTAs with equal vigour. The early conclusion of an FTA with the European Union, Comprehensive Economic Cooperation Agreement with Australia and other important partners will offer Indian exporters enhanced market access in alternative markets.”
Third, “strengthening import monitoring mechanisms becomes important in wake of a greater risk of dumping into India….Fourth, sustaining public capital expenditure is vital in maintaining growth momentum amid global headwinds. Continued public capex will ensure that the domestic economy remains resilient and also help to crowd-in private investments over the medium term."
Fifth, “monetary policy should continue to remain accommodative. With inflation currently under control and projected to be lower in coming quarters, further rate cuts by the Reserve Bank of India will help propel growth.”
Sixth, “anchor potential foreign investments across sectors looking to diversify their supply chains from China, Vietnam and other countries. A focused approach would be required to target global companies to set up shop in India.”
Finally, “work towards next generation reforms and regulatory reforms must be expedited.” Industry also “needs to re-strategise amidst rising costs, disrupted supply networks and asymmetric information”
