Proactive Measures Can Help India Boost Its Global Trade Volume Amid Current Uncertainties

As there is a threat to exports to USA, India is currently working on a strategy on bringing about a balance by way of rationalisation lest it also faces new tariffs from USA for imports from India

The world in grappling with countless uncertainties with the current geopolitical situation, the seemingly unending war between Ukraine and Russia and the unrest at Israel and Palestine are among the ones that have caused unimaginable economic and trade turmoil.

These disruptions in global trade due to the recent changes in trade policies and the corresponding tariff revisions coupled with climate related taxes have had a great bearing on the free flow of trade. Instead of globalisation and openness, we are seeing too many protectionist measures like supporting local business and the rising number of non-tariff measures that restrict international trade have also increased over the last few years. The supply chain and movement of goods have been affected because of disruptions in global trade due to the Red Sea crisis, Ukraine war and drought in the Panama Canal. This has increased the voyage time and so has the freight cost. Additionally, USA and Europe have imposed sanctions due to Ukraine war, which are also affecting global trade and the entire payment settlement mechanism.

According to Economic Survey 2024-25, "the Technical Barriers to Trade (TBT) affect 31.6 per cent of the product lines covering 67.1 per cent of the global trade as of December 2024. According to the survey, this is followed by exports related measures, affecting 19.3 per cent of the product lines and covering 31.2 per cent of the global trade. Among the sectors that are most affected are agriculture, manufacturing and natural resources.

It should be noted that US President Donald Trump has been warning that countries, which have imposed higher tariffs on US exports and carry surplus balance of payments, cannot be having the comfort of trade with USA unless they revise tariffs. Accordingly USA has imposed new tariffs on imports from Mexico and Canada and has doubled the levy recently put on Chinese goods.

In a strange irony, a day after the measures were brought into effect, Trump announced a month-long exemption for US car makers, who were expected to be badly affected. He had announced tariffs on steel and aluminium. These resulted in retaliation by Canada and China with their respective tariffs against US goods. Quite apparently, these will add fuel to the global trade war, while prices would be hiked by several notches. As there is a threat to exports to USA, India is currently working on a strategy on bringing about a balance by way of rationalisation lest it also faces new tariffs from USA for imports from India This will have a major impact on India’s trade as USA is amongst the major destination for exports.

There is also a threat to global trade given the increase in use of NTMs as a measure to mitigate climatic change. Currently, 26.4 per cent of global trade, valued at $6.5 trillion, is covered by climate change related NTMs. There is also a threat of imposition of climate related NTMS by the EU in the form of the Carbon Border Adjustment Mechanism (CBAM ) and European Union Deforestation Regulation (EUDR), which will likely have greater implications for exporters in emerging economies like India, China and Turkey.

In these periods of global uncertainties, India has to strategise and initiate the necessary supporting measures and policies to ensure continuity of international trade as nearly 50 per cent is contributed by international trade to GDP. (In 2023, international trade contributed 45.92 per cent to India's GDP, according to World Bank).

Our manufacturing exports should focus on high value products, quality and sustained productivity, which can be enhanced substantially by innovation and adoption of manufacturing with emerging technologies. Moreover the manufacturing sector has to adopt sustainability and reduce carbon emissions by way of adaptation to avoid any carbon related taxes. The export led manufacturing sector has to employ effective strategies to stay competitive and improve acceptance levels in the global market. There is also a need to widen the export basket as well as the destination particularly the emerging markets along with the developed countries. Ongoing efforts to have a greater participation in global supply chains and with focus on domestic logistics and warehousing and improving accessibility to port, airport, railway for having competitive logistics cost to provide better margin in global trade. The private sector along with the support of government must work towards enhancing quality and efficiency.

The Economic Survey notes that India needs to assess the situation and evolve a forward looking strategic roadmap that leverages its strength. There is an urgency to finalize the FTA as well as MFT and intensify trade deals with top importers such as EU and UK. There is also a need to diversify the services-led exports like international tourism infrastructure, global transport networks along with travel, transport and financial services, which all have untapped potential. These proactive measures will help India to hold and expand its international trade in spite of the current adverse market situation.

(The author is former Chairman & Managing Director of Indian Overseas Bank)