India is currently walking a tightrope as trade pressures ramp up around the world, especially with the United States. Agneshwar Sen, a trade policy expert with Ernst & Young India, warns that tariff hikes set in motion by the U.S. are fundamentally remaking the global trading system. Perhaps most significantly, there is a jaw-dropping 34% increase on China-derived products. As a significant player in international trade, India is grappling with the implications of these developments while seeking to maintain its export momentum.
The U.S. has become India’s largest export market. It represents as much as $91 billion (£69 billion) worth of goods, which is 18% of all Indian exports. India’s approach seems to be a departure from other countries under the same globalizing squeeze. Such an approach would be a dramatic departure because Prime Minister Narendra Modi’s government has taken a largely conciliatory line toward President Trump. Canada, Mexico and the European Union have taken a more aggressive route to retaliate. It is their contention that this step can reduce the danger of any retaliatory actions being taken by India.
To begin counterbalancing this dangerous shift in the global environment, India has sensibly begun recalibrating its domestic trade policy. The country has dramatically reduced tariffs on luxury items like motorbike and bourbon whiskey. With this move, they hope to further improve on that competitive advantage. India is waking up to the economic possibilities of the global South. This region has become home to more than 20% of global consumption, as it develops a rapidly-growing middle class.
Despite these changes, organizations like rating agency Fitch have raised red flags over the systemic effects that mass, economy-wide tariff increases can have. They have increasingly raised the alarm that these developments portend weaker growth, higher inflation, and even looming recessions in much of the world. The unpredictability of the trade scenario adds to the existing burdens that Indian enterprises face. As markets change, these companies will have to adapt their approaches.
India’s trade landscape is made more difficult with possible risks of “Chinese dumping,” explained Nilesh Shah. The recently implemented tariff differential with Asian competitors means re-routing of Indian exports, forcing Indian firms to consider other markets. To promote more exports, the Indian trade research agency GTRI calls upon India to expand its export policy. They further advise focusing on markets such as Europe, Southeast Asia, and Africa, which currently have lower prevailing tariffs.
The changing landscape requires nothing less than that the Indian government fully support its nascent domestic industry. Production-linked subsidies will ensure that Indian businesses remain globally competitive. This strategy positions them well to capture emerging new opportunities created by today’s trade reality.
India is pursuing negotiations for FTAs with other countries and regional blocs including the European Union and the United Kingdom. Simultaneously, it requires the administration to develop a smart, comprehensive plan to address the domestic effects of U.S. trade policies. Experts caution that the ramifications of Trump’s decisions will likely have a knock-on impact on domestic demand and gross domestic product at a time when India’s growth has already been stuttering.
“That will likely have a knock-on impact on domestic demand and headline gross domestic product at a time when growth is already stuttering.” – Priyanka Kishore
Indian businesses are entering a prolonged and uncertain period, one that will not blow over anytime soon. As the industry continues to thread this needle, those who lead in this space know that the ability to pivot and demonstrate resilience is key.
“The US is our largest export market, so this is serious stuff.” – Rahul Ahluwalia
Akash Prakash highlights the global South’s importance in the evolving economic landscape:
“The global South accounts for more than 20% of global consumption and is where the new middle class is being created. This is where China will attempt to sell.” – Akash Prakash
India desperately wants to build its place in global trade. In order to thrive, it will need to remain nimble and forward-looking, addressing new challenges and leveraging opportunities in emerging global markets.