In the Race for Exports, India’s Competitive Edge Missing

Amid rising global trade protectionism and US-China tensions, India faces both risks and opportunities. 

Evolving Global Trade Dynamics

• US Protectionism : The US administration under Donald Trump has returned to a protectionist trade stance, reviving uncertainties in global tariff policies.
• Targeting China : The current policies are particularly aimed at China, building on the US-China trade tensions from Trump’s first term.

Impact of Changing Trade Dynamics on India

• Export Surge: With China’s exports facing US barriers, there is a risk of surplus goods flooding other markets, including India.
• Risk of Dumping: Chinese exporters may resort to aggressive pricing and dumping, directly threatening Indian firms in their home market.
• Missed Opportunity: India gained little from the 2018 US-China trade war, failing to attract major trade or manufacturing shifts.
• Strategic Gains: Now, India has a renewed opportunity to benefit—if it can improve competitiveness and reform outdated frameworks.

Challenges Associated with India

• Low Ranking: A recent Competitiveness Index places India at the bottom among five key Asian economies, raising alarm.
• Regional Rivals: Malaysia, Vietnam, and Thailand lead the rankings with strong trade fundamentals and economic efficiency.
• Poor Performance: The index tracks six core pillars, and India underperforms in most, indicating a lack of readiness for global trade shifts.
• Need for Deep Structural Reforms: This lag signals the urgency of addressing policy, regulatory, and economic inefficiencies to compete globally.
• Low Labour Productivity: India has seen the highest workforce growth among its peers, offering a potential labour cost advantage.
  • Despite this, productivity levels are the lowest, reducing the overall effectiveness of the growing workforce.
• R&D Deficit: Indian firms rarely invest in R&D or launch new products, limiting their ability to compete in innovation-led markets. 
  • Malaysia and Thailand excel in R&D and innovation, improving productivity and export competitiveness.
• Lack of Financial Access: Many Indian firms lack access to finance, facing frequent credit rejections that hinder growth and competitiveness.
• Land Scarcity: Land availability is restricted by complex regulations and building norms, raising input costs and limiting usable land.
• Lack of Exporting potential: India scores well on domestic demand, thanks to its large internal market, enabling firms to scale operations.
  • This large market also reduces export incentives, with Indian firms showing the lowest foreign demand among peers.
• Oligopolies: India has high firm concentration, where a few firms dominate key sectors, limiting healthy competition.
• Raw Material Monopoly: Monopolies in raw materials raise input prices, impacting downstream sectors’ global competitiveness.
• Complex Regulations: India ranks low on regulatory quality, facing issues like corruption, tax complexity, and judicial delays. 
  • These regulatory hurdles disproportionately affect SMEs, stifling their growth and innovation potential.
• Protectionist Approach: India’s high import tariffs and absence from key trade blocs restrict participation in global value chains. 
  • In contrast, Vietnam enjoys cheap inputs and preferential market access via broad trade agreement participation.
• Sectoral Gaps: Indian firms admit to low R&D investment and a heavy dependence on domestic markets for revenues. India’s cotton-focused apparel industry fails to keep pace with rising global demand for synthetic garments.
• Rigid labour laws: It deter firm expansion, encouraging businesses to remain small to avoid compliance burdens.
• Missing Middle  Problem: This has led to a persistent “missing middle”, where too few mid-sized firms bridge the gap between MSMEs and large corporations.
• Structural Issues: India’s bottom ranking on the Competitiveness Index signals long-standing systemic challenges, not just cyclical problems.

Conclusion

India must adopt a forward-looking competitiveness strategy  focused on productivity, innovation, and trade integration.