A holistic perspective on India’s external trade
As India has progressively liberalized its economy and ushered in policy reforms to boost ease of doing business, the impact on competitiveness of Indian businesses has also steadily improved. The share of total exports (Merchandise and Services combined) to GDP was at 18.7% in 2020-21, 18.6% in 2019-20 and 19.91% in 2018-19.
The contribution of merchandise export to GDP that was 12.2% in 2018-19 has come down to 11.07% in 2019-20 and 10.94% in 2020-21. The share of services exports to India’s GDP declined from 7.7% in 2018-19 to 7.53% in 2019-20. Subsequently it has increased back to 7.7% in 2020-21.
For FY 2021-22, share of merchandise and services exports to GDP was 20.9%.
World Bank, ADB (Asian Development Bank) and IMF International Monetary Fund) have projected that India is likely to remain the fastest growing major economy in the world during FY 2021-24.
The world has recently passed through the COVID 19 pandemic. There have been repeated waves of infection, supply-chain disruptions and more recently, global inflation. To meet with these challenges, the Government of India opted for a Barbell -Strategy that combined a bouquet of safety-nets to mitigate the adverse impacts of the Covid-19 pandemic on vulnerable sections of society and the business sector.
The Government of India emphasises on supply-side reforms rather than relying entirely on demand management. These supply-side reforms include deregulation across sectors, simplification of processes, production linked incentives, encouragement to new enterprise and SMEs, etc. The sharp rise in capital spending by the Government will build infrastructure capacity for the future growth, and can be viewed as both a demand side and supply side response.
In compliance with WTO guidelines, the Government of India has introduced the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme to replace the earlier MEIS scheme. Both the RoDTEP and the PLI schemes launched by the government are WTO-compliant. RoDTEP scheme is based on the principle that taxes and levies on the exported products should be either exempted or remitted to the exporters and therefore is a step towards zero-rating of exports. The PLI scheme mandates investment thresholds and is targeted towards incremental sales for availing the scheme incentives.
The large-scale digitalisation of the economy that is currently underway, along with the advances in frontier technologies such as Artificial Intelligence (AI), robotics, biotechnology and nanotechnology are likely to drive India’s economic development forward through economies of scale, scope and speed of trade.
Treading ahead in this direction, India has signed 13 Free Trade Agreements (FTAs) with its trading partners. After a considerable gap, the country has signed 3 agreements, namely India-Mauritius Comprehensive Economic Cooperation and Partnership Agreement (CECPA), India-UAE Comprehensive Partnership Agreement (CEPA) and India-Australia Economic Cooperation and Trade Agreement (Ind-Aus ECTA) during the last year. It is aggressively engaging with other key trade partners like EU, UK, Israel, and GCC nations for similar FTAs.
The approach from all stakeholders has to be extremely flexible to adapt to the highly dynamic global environment. This will involve various elements including:
- Strategic reorientation of products and markets to exploit lucrative avenues for export enhancement
- Facilitating Indian firms to compete effectively in global markets
- Appropriate policy initiatives to incentivize exports and enhance ease of business
- Addressing the challenges, building consensus and adapting to the changing dynamics at the WTO.
- Building awareness of quality standards and ensuring Indian firms match their product quality with the requirements of target markets.
- Entering into relevant trade agreements/MoUs with careful analysis of trade complementarities to maximise mutual gains.
Under ‘Overview of India’s Foreign Trade’ TPCI presents an in-depth analysis of contemporary trends, evolving ecosystem, key stakeholders, policy framework, major issues and a future roadmap for India’s foreign trade. The following reports provide a holistic perspective on the current status and future trajectory of India’s trade, for the benefit of all stakeholders in the ecosystem.
• India’s trade with the World
• India’s Trade Policy
• India & the WTO
• India’s Trade Agreements