Introduction
India currently accounts for approximately 1.8% of global merchandise exports, with the Foreign Trade Policy 2023 aiming to achieve $2 trillion in total exports by 2030 and a 10% global export share by 2047. However, realizing this ambitious trajectory requires systematically dismantling domestic and external structural impediments that depress export competitiveness.
Major Bottlenecks Hindering Trade Competitiveness
- Tariff Inversion and GVC Isolation: Relatively high applied Most Favoured Nation (MFN) tariffs (averaging ~16%) on intermediate inputs create inverted duty structures that inflate production costs. This protective stance has restricted India's share in global value chain (GVC) exports to below 2%.
- Logistics and High Factor Costs: While national logistics costs have moderated toward 7.97% of GDP, MSME exporters incur logistics costs up to 16.9% of output. Additionally, cross-subsidised industrial electricity tariffs and elevated trade credit spreads undermine price competitiveness vis-à-vis regional peers.
- Suboptimal FTA Utilisation: Utilisation rates of India's existing Free Trade Agreements (FTAs) with ASEAN, Japan, and South Korea remain below 25%, primarily due to stringent Rules of Origin, complex documentation, and limited exporter awareness.
- Emerging Green Non-Tariff Barriers (NTBs): Regulations like the European Union's Carbon Border Adjustment Mechanism (CBAM) and deforestation rules impose compliance penalties on energy-intensive exports such as steel, aluminium, and agricultural commodities.
- Enterprise Dwarfism and Compliance Costs: Although MSMEs contribute about 45% of India's outbound shipments, firm-level dwarfism prevents them from achieving the economies of scale needed to absorb steep sanitary, phytosanitary, and quality certification costs.
Measures to Enhance Global Trade Integration
- Tariff Rationalisation: Correct inverted duty structures by lowering tariffs on components, intermediate inputs, and capital equipment to integrate smoothly into electronics and engineering value chains.
- Logistics Modernisation: Accelerate the multimodal integration envisioned under PM Gati Shakti and complete Dedicated Freight Corridors (DFCs) to shift freight toward cost-effective rail and coastal shipping.
- Modern Free Trade Agreements: Negotiate comprehensive, standard-aligned trade pacts with key Western markets (such as the EU and the UK) while embedding Mutual Recognition Agreements (MRAs) to lower regulatory friction.
- Decarbonisation and Green Transition: Upgrade domestic laboratory testing infrastructure and provide accessible green transition financing to help export-oriented manufacturers comply with emerging international environmental standards.
- Decentralised Export Promotion: Operationalise E-Commerce Export Hubs and the 'Districts as Export Hubs' initiative under FTP 2023, supported by expanded export credit guarantees and streamlined cross-border payments for MSMEs.
Conclusion
India must transition from a defensive tariff regime toward systemic cost competitiveness and domestic efficiency. Lowering trade frictions and fostering scale will anchor India as an indispensable node within resilient global supply chains.