Role of India in contemporary international trade

Source-This post on Role of India in contemporary international trade has been created based on the article “War minus shooting: Role of India in contemporary international trade” published in “Business Standard” on 24 May 2024.

UPSC Syllabus–GS Paper-2-International Relations– Bilateral, Regional and Global Groupings and Agreements involving India and/or affecting India’s interests & GS Paper-3- Effects of Liberalization on the Economy.

Context-The article highlights the current climate of global trade and compares it with the Cold War era. The recent moves by central banks to increase gold reserves, attempts by China and India to internationalize their currencies, and US tariff hikes on Chinese products are deepening fragmentation in international trade and raising costs.

According to the IMF’s Gita Gopinath, the fragmentation is much smaller than during the Cold War.However,the two emerging blocs are now led by the US and China.

What challenges does India face in global trade integration?

India, a former leader of the Non-Aligned Movement, faces the dilemma of positioning itself between the US and China blocs.

1) India is not able to reduce its dependency on Chinese imports despite attempts such as the production-linked incentive scheme.India’s economy is closely linked to Chinese imports, with a huge trade deficit of $85.08 billion in 2023-24.

2) India did not join the RCEP trade agreement, marginalizing itself from the largest trading arrangement in Asia and limiting its ability to influence trade rules and norms.

3) India has its own focus areas in international trade, as seen in initiatives like the Chabahar port agreement with Iran, despite facing threats of sanctions from the United States.

4) India’s lack of deeper integration with the global economy limits its ability to play a connector role compared to countries like Singapore.

5) India has tried to make the rupee acceptable for international payments but remains dollar-dependent due to the lack of a significant alternative system. The rupee trade system faced challenges, as Russia did not want it.

Read more- India-China Trade: Status and Concerns

What are the steps taken by China to reduce its dependence on dollars?

1) China is trying to diversify its currency reserves and reduce dependence on the US dollar by internationalizing the Yuan.

2) It has established the China International Payments System (CIPS) as an alternative to SWIFT.However,it still relies on a memorandum of understanding with SWIFT.

3) According to experts, if the Yuan lacks full convertibility in the capital account, it will find it difficult to challenge the dominance of the US dollar.

Question for practice

What challenges does India face in global trade integration?