Global value chains accounted for 52% of global trade in 2022, with suppliers, firms and customers across the world showing a high level of inter-connectedness. Yet, a shift in perspective is underway, with a number of large economies turning towards ‘protectionism,’ thus increasing both trade and geopolitical conflicts.
Amid this uncertainty, India’s relationship with its largest trade partners—China and the US—is also evolving. The recent border deal and meeting between Prime Minister Narendra Modi and President Xi Jinping could pave the way for better India-China relations and trade.
Concurrently, the outcome of the US presidential elections foreshadows policy changes that can reshape the future of global trade. Given that imports account for almost 14% of the US gross domestic product (GDP), any imposition of high import tariffs will hurt both consumption within the US and export-focused economies across the Global South.
In this context, India’s growth journey, with its ambitious Viksit Bharat target by the centenary of its independence, needs to be charted out strategically. Increasing exports will play a key role, and the government has set a target of $1 trillion worth of merchandise exports by 2030 and $1 trillion of service exports.
In many ways, the foundation for this aspiration was laid in the 1990s through liberalization and measures to enable trade competitiveness. Focused reforms since then, including the production-linked incentive schemes and ‘Make in India’ initiative, combined with infrastructure development programmes, trade agreements and stronger participation in multilateral forums, have garnered significant manufacturing investments in India.
However, India still has some distance to go to benefit from its global supply chain diversification initiatives. Sustaining momentum over the next phase of growth would require focusing on enhancing productivity at scale. Sporadic development in pockets will not be enough—quantifiable progress will be defined by the ability to embrace technology and competitively scale multiple industrial developments.
Likewise, enhancing productivity will be a function of increasing the share of value-accretive manufacturing as well as overall export volume. This would entail supporting micro, small and medium enterprises (MSMEs) through knowledge and capacity-building initiatives to ensure inclusive export growth.
Simultaneously, technological upskilling to encourage on-ground innovation, combined with access to complementary knowledge and systems, can help Indian businesses improve the sustainability of their supply chains and raise their credibility globally.
We need to streamline the processes associated with accessing and using our physical and digital infrastructure. While the turnaround time at Indian ports has declined from 4.3 days in 2012-13 to 2.1 days in 2022-23, it is still higher than the global median of 1.04 days. Similarly, the release time for exports is high.
Increasing efficiency in export processes through the establishment of on-premises testing facilities and reducing the number of manual touchpoints can help. Such infrastructural support, when combined with single window clearances, credit support and knowledge units, will help boost MSMEs and large corporates alike.
Another focus area is research and development (R&D) and innovation. Despite policy and budgetary support, India’s gross expenditure on R&D is under 1% of its GDP. Implementing targeted outcome-driven incentives such as the production- and employment-linked incentives supported by the Union budget can help institutionalize the process.
Creating direct entry programmes between academic as well as research institutes and the industry, coupled with increased collaboration with the startup ecosystem can further bridge the gap between theoretical research and practical requirements.
Building Gift city-like centres to cater to manufacturing export hubs, with easy access to ancillary support services can encourage synergies. Technology will also play an important role in facilitating an ‘automation-plus approach’ on factory floors and can aid migration of labour into automation-augmented manufacturing.
This will lead to an upskilling of the workforce and improve overall productivity. Multiple Indian states host investment promotion programmes and establish their presence at international forums such as World Economic Forum’s (WEF) annual meeting at Davos.
These are welcome, but need to be supported by coordinated policy action, with the central government focusing on improving both the ease of doing business and India’s investment attractiveness.
The road ahead is promising. A key factor will be the ability to closely monitor short and long-term shifts in the market and trade patterns. As India braces for changes in the environment, it is well positioned to tap the growing opportunities.
Strategic global partnerships, conducive trade policies and a robust domestic manufacturing industry can ensure that India remains a preferred business destination for the world.
The author is chairperson, PwC in India.
