New Delhi: Even though India is seen as an attractive destination for companies looking to shift their manufacturing bases out of China, the country has so far seen “limited success” in capturing the China Plus One strategy, losing out to countries like Vietnam, Thailand, Cambodia, and Malaysia, according to a report by the government think-tank NITI Aayog.
Meanwhile, NITI Aayog CEO B.V.R. Subrahmanyam believes that US President-elect Donald Trump’s plan to increase tariffs on three of its trading partners, including China, will provide huge export opportunities for India.
In its report ‘Trade-Watch’ for April-June (Q1) FY25, released Wednesday, the think tank noted that the US has implemented stricter export controls and higher tariffs on Chinese goods to limit China’s growth and expenditure towards technological progress. This has led to a fragmentation of global supply chains, prompting multinational corporations to seek alternatives to Chinese manufacturing.
While the trade war has caused increased costs and production delays, impacting global markets, for India, this situation presents both challenges and opportunities. India, it said, has to navigate the disruptions in the global supply chain, and be wary of China dumping its products in Indian markets.
“On the other hand, India is seen as an attractive destination for companies looking to shift their manufacturing bases out of China. This shift offers India a chance to enhance its domestic manufacturing capabilities, particularly in high-tech industries. However, India has seen limited success so far in capturing the China Plus One strategy so far,” it said, adding that Vietnam, Thailand, Cambodia, and Malaysia have become bigger beneficiaries of the strategy.
According to NITI Aayog, factors such as cheaper labour, simplified tax laws, lower tariffs and proactiveness in signing free trade agreements (FTAs) have played a critical role in helping these countries expand their export shares.
Meanwhile, replying to a query during the launch of the report, Subrahmanyam said, “Whatever Trump has announced so far…I think there are opportunities for India. We are a man at first slip, the ball is coming in our direction. Are we going to hold it or drop the catch, it’s for us to see…and I think you will see some steps in the next few months.”
He said there is going to be huge disruptions because of that in the US trade and that would open up “huge” opportunities for India. “The question is if we actually prepare ourselves, it can lead to a massive boom… because there is going to be trade diversion,” he added.
The report also pointed out that the ongoing conflicts in the Middle East may pose risks for India.
The Middle East continues to experience heightened geopolitical tensions, with conflicts in Syria, Yemen, and the Israel-Hamas situation posing significant risks to global stability. These tensions have raised concerns about the security of key maritime routes, particularly the Strait of Hormuz, through which a substantial portion of the world’s oil flows, it said.
Any disruption in this region could destabilise global energy supplies, leading to price spikes in crude oil and supply shortages, it said, adding that trade routes like the Suez Canal face the risk of delays and increased costs due to the instability in the region.
“For India, the risks are multi-dimensional. A $10 per barrel increase in oil prices is projected to worsen India’s Current Account Deficit (CAD) by 0.5% of GDP, exacerbating inflationary pressures and further straining trade balances. India’s dependence on the Middle East for both energy and agricultural exports makes it vulnerable, with key markets such as Iran for basmati rice and tea seeing sharp declines,” the report noted.
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Exports to Northeast Asia, West Africa slowed
For the first quarter of this year, India’s exports are primarily directed towards North America, the EU, West Asia (GCC), and ASEAN, while imports mainly come from Northeast Asia, West Asia (GCC), and ASEAN, the report showed.
In Q1 FY25, North America accounted for about 21 percent of India’s exports, followed by the EU with 18.61 percent, which has shown a growth rate of 11.26 percent and 12.33 percent, respectively. However, export slowdowns were observed in Northeast Asia and West Africa. The Asian region, particularly Northeast Asia, West Asia (GCC), and ASEAN, is a key source of India’s imports in Q1 FY25, accounting for nearly 51 percent of total imports.
The report pointed out that India has established strong trade relationships with the USA and UAE in sectors like minerals fuels, pharmaceutical products, and natural pearls. “These sectors present further opportunities for India to deepen trade ties and expand its market share. India also has significant untapped potential in sectors like electrical machinery, vehicles, and organic chemicals, especially in markets like the USA, China, and the UK,” it said.
The report also noted that in recent years, India’s share in global trade has fallen for labour-intensive sectors despite significant endowment. The trade share for natural and cultured pearls has decreased due to the scarcity of natural pearls and the rising demand for South Sea pearls, especially in China. India’s share in the global boneless frozen beef trade has fallen due to stagnant exports, currency crises in key importers like Egypt, and COVID-19 disruptions, it said.
“Similarly, challenges in the polyester value chain and anti-dumping duties have lowered the share for Indian man-made fibre (MMF) textiles. India’s share in major leather export markets has declined due to market instability, stiff competition, and environmental regulations,” it said, adding that decreased global demand, lower cotton production, and high prices have reduced the share for Indian cotton exports.
Quality control orders and global economic slowdowns have led to a drop in India’s textiles and apparel exports, with certification mandates for raw materials and reduced purchasing capacity from high inflation further impacting this decline, it said.
(Edited by Zinnia Ray Chaudhuri)
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