How India should review and improve its trade policies to boost exports

Source: The post how India should review and improve its trade policies to boost exports has been created, based on the article “Changing terms of trade: India must aim to boost export share” published in “Business standard” on 13th June 2024

UPSC Syllabus Topic: GS Paper 3-Economy-growth, development and employment.

Context: The article discusses how India should review and improve its trade policies to boost exports. It highlights the need to reduce high tariffs, join trade agreements, invest in human capital, and diversify export destinations to achieve sustainable growth and competitiveness.

For detailed information on Boost to India’s Export read this article here

What is the Current State of India’s Trade?

1. Global Share: India’s contribution to global merchandise exports was only 1.8% in 2023.
2. Comparison with Other Countries: This is significantly lower than the shares of the US and China, which stood at 8.5% and 14.2% respectively.
3. Export Decline: In the fiscal year 2023-24, India’s merchandise exports witnessed a decrease of 3.09%.
4. Services Sector: India is the seventh-largest exporter of services globally, showing resilience amid global economic fluctuations. Despite strengths, the growth rate of services exports fell to a three-year low of 4.9% in 2023-24.

Why Is Trade Important for India’s Growth?

1. Boosts Aggregate Demand: International trade drives aggregate demand, essential for rapid growth.
2. Reduces Dependence on Foreign Savings: Higher exports decrease reliance on foreign savings.
3. Job Creation: Expanding exports generates jobs for India’s growing workforce.

What Are the Current Challenges in India’s Trade Policy?

1. High Tariffs: High tariffs reduce the competitiveness of domestic manufacturers, especially affecting small and medium enterprises.
2. Lack of Major Trade Agreements: India is not part of significant trade agreements like the Regional Comprehensive Economic Partnership (RCEP), limiting its integration into global value chains.
3. Dependence on Chinese Imports: Despite avoiding RCEP, India has not reduced its reliance on Chinese imports.
4. Regulatory Challenges: New measures like the European Carbon Border Adjustment Mechanism could restrict Indian exports further.

What should be done?

1. Address Climate Concerns: Prepare for regulations like the European Carbon Border Adjustment Mechanism to avoid restrictions on exports.
2. Invest in Human Capital: Services exports rely on skilled workers. Significant investment in education, training, and research is needed. India saw a 60% increase in global capability centers from 2015-16 to 2022-23.
3. Diversify Export Destinations: Reduce reliance on the US and Canada, which account for over half of India’s services exports, to mitigate economic risks.

Question for practice:

Examine India’s current challenges in trade policy and propose strategies to address them for boosting exports.