New Delhi:

India registered record exports in the just concluded financial year 2023-24 at USD 778 billion, sources in the commerce ministry said. In 2022-23, the country exported goods and services combined at USD 776.3 billion.

In break up, services exports rose from USD 325.3 billion to USD 341.1 billion in 2023-24. Merchandise exports though marginally declined from USD 451.1 billion to USD 437.1 billion.

Among various steps the government took was to launch a Production Linked Incentive (PLI) scheme in varied sectors, including electronic goods, to make Indian manufacturers globally competitive, attract investments, enhance exports, integrate India into the global supply chain and reduce dependency on imports. These seemed to have reaped dividends.

China, Russia, Iraq, UAE, and Singapore are among the countries where India’s exports in the just-concluded financial year have risen substantially, though with a low base. The other countries in the Top 10 list are the UK, Australia, Saudi Arabia, the Netherlands, and South Africa.

Coming to overall imports, they declined from USD 898.0 billion in 2022-23 to USD 853.8 billion. Both merchandise and services exports declined during the financial year.

Overall trade deficit significantly improved from USD 121.6 billion in 2022-23 to USD 75.6 billion in 2023-24.

In the first month of 2024-25 – April, India exports, including merchandise and services, rose from USD 60.40 billion to USD 64.56 billion. Imports however rose from USD 63.02 billion to USD 71.07 billion.

The trade deficit during April rose from USD 2.62 billion to USD 6.51 billion on a yearly basis.

During April, exports of electronic goods, organic and inorganic chemicals, petroleum products, and drugs and pharmaceuticals were higher on a yearly basis. On the contrary, exports of engineering goods, iron ore, gems and jewellery, marine products, and oil meals declined.

On the import side, petroleum crude and products, gold, electronic goods, pulses, and vegetable oil, rose while pearls precious metals and precious stones, iron and steel, among others, declined.

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)

As India signs a Free Trade Agreement with 4 European Nations, is there hope for other negotiations- from the UK and EU to Oman, Gulf and Eurasian countries? Do FTAs help increase trade substantially? And are they a challenge to the global economic order under the WTO- Up ahead, an interview with Irish Trade minister on whats delaying the India EU FTA

Hello and Welcome to WorldView at The Hindu with me Suhasini Haidar.

This week we look at an important part of Foreign Policy- Trade policy and trade diplomacy.

While at present the Ministry of External Affairs oversees diplomacy, and the Ministry of Commerce negotiates Trade policies, we are seeing both come together more and more for trade talks. In fact in countries like the UK, Australia, Canada and others Departments of Foreign Affairs and Trade are actually merged together.

Let’s start with this week’s developments, and a flurry of activities around India’s Free Trade Agreement negotiations just ahead of elections being announced:

1. India signed a Trade and Economic Partnership Agreement (TEPA) with a 4-nation non-EU European Bloc of Iceland, Norway, Liechtenstein and Switzerland. The agreement that was completed after 21 rounds of talks, and began in 2008, had been suspended between 2013-2023.

-The agreement included a chapter on investment promotion, with EFTA countries promising $100bn investment in 15 years, as long as high GDPs and other economic factors remain. 

– On Intellectual Property Rights, India rejected a push for data exclusivity, which could have raised prices of Generic Pharma in India

– It also included a chapter on Human Rights and Sustainable development

There’s more of our coverage on the EFTA India FTA ,including an interview with the key Swiss Minister in charge of the negotiations Helene Budliger

2. The India-UK FTA has made some progress, but it is unclear if it can be signed now, before elections, or later this year as the UK heads to elections. Prime Minister Narendra Modi and British Prime Minister Rishi Sunak spoke this week to discuss the FTA

3. Belarus Foreign Minister Sergei Aleinik said after talks in Delhi that India and the Eurasian Economic Union are serious about starting FTA talks now

4. And during a visit to India, Ireland’s Trade Minister Simon Coveney said that hopes are high on the India-EU Bilateral Trade and Investment Agreement (BTIA). Listen in, as I asked him just what was holding up the agreement:

Now at present India has FTAs with about a dozen countries and regions, most of which were signed pre-2014:

1. India-ASEAN FTA, also CECAs with Singapore and Malaysia

2. India-Japan CEPA

3. India-S. Korea CEPA

4. SAFTA of all SAARC countries- along with separate FTAs with Sri Lanka, Nepal, Bhutan

More recently the government has signed 3 FTAs

5. India-Mauritius CECPA-implemented in 202

6. India-UAE CEPA, implemented in 2022

7. India-EFTA FTA, expected to be implemented in 2025

There’s also the India-Australia Early Harvest Agreement or ECTA, which is not a full-fledged FTA yet, that is being negotiated.

In the works at present are negotiations with dozens of countries- but the ones that seem most on the anvil are:

1. Australia- CECA was due to have been completed by December 2023

2. Canada- Negotiations for CEPA suspended by Canada over the Nijjar killing last year

3. UK- FTA was nearly done many times in the past few years, but first the rapid changes in UK PMs, and then India’s own election process has tripped it up

4. Oman- FTA is understood to have been finalised, so you can expect an announcement soon, or after elections

5. Gulf Cooperation Council 6 nations-FTA has been delayed, some consideration of joining with the India UAE FTA

6. European Union- BTIA- talks were suspended between 2013-2022, but now in advanced stages

7. Eurasian Economic Union EAEU 5 Post Soviet States including Russia and Belarus- where talks may begin soon.

One with the US that was started during the Trump presidency was dropped by the Biden Administration, and could be picked up if the government changes.

Broadly, where are the stumbling blocks for India’s negotiations:

1. Modi government had a traditional mistrust of FTAs, suspended most talks after 2014, and scrapped all Bilateral Investment Treaties

2. In 2019, India also walked out of the RCEP- 15 nation Asian and Australian FTA . While India has refused to reconsider, neighbours like Bangladesh and Sri Lanka have applied to join RCEP.

3. India’s announcement of the Make In India or Atmanirbhar Bharat policy runs counter to free trade without subsidies negotiations

4. India has always been protective of agricultural sector, and most FTAs leave the subject out entirely

5. Concerns about Chinese goods flooding the markets via FTAs with third countries – mean India pushes for strong Rules of Origin clauses

6. Intellectual Property Rights is increasingly a problem as countries move towards R&D as an economic mainstay, India is being forced to accept more international patents

7. Issues like Democratic freedoms, Human Rights issues, transnational operations are also bleeding into negotiations like the EU, EFTA and now Canada

8. FTAs defeat the purpose of the WTO, and bypass global mechanisms for free trade

Quick question on the benefits of FTAs- theres no doubt that trade increases with FTAs as they

-Reduce or zero out tariffs in most sectors

-Increase market access for both parties

-Make for reliable supply chains

-Build a positive momentum for trade

If you want to quantify benefits, it is more difficult in the short term, but Commerce Ministry figures given in Parliament said this in terms of how India’s exports grew:  

India’s exports – RTA Partner Countries/Region wise

Values in US$ billion

Source: Directorate General of Commercial Intelligence and Statistics (DGCI&S)

Clearly, there are benefits to FTAs, and that probably explains the complete turnaround in the government’s policy towards negotiations over a decade.

WV Take: Free Trade Agreements are not just about tariff reductions and transactional approaches of give and take on market acess or IPR- they are an avowment of mutual trust between two countries or regions, and in effect a commitment to give each other’s businesses and investments near national treatment. Protectionism and political differences will always be the biggest blocks to the free flow of trade, and it is necessary that India align its trade policy with its domestic and international outlook on other issues, before rashly entering or leaving free trade agreement notifications.

WV Reading Recommendations:

1. India’s Moment: Changing Power Equations around the World by Mohan Kumar

2. FREE TRADE AGREEMENTS: India and the World by Dr V. S. Seshadri

3. India’s Foreign Policy in the Post-Covid World Edited by Surendra Kumar- Chapter on India’s economic diplomacy by Rahul Chhabra

4. India’s Trade Policy in the 21st Century by Amita Batra

5. JOURNEY OF A NATION : 75 YEARS OF INDIAN ECONOMY by Sanjaya Baruc

Script and Presentation: Suhasini Haidar

Production: Gayatri Menon and Shibu Narayan

Like with the last episode of Business Matters, this one too was triggered by a headline I saw in an article: “India fears losing out to China in smartphone exports race”.

This Reuters piece cited IT Minister of State Rajeev Chandrasekhar’s letter dated January 3 to Finance Minister Nirmala Sitharaman expressing fears that India’s high tariffs could be a deterrent to investments – investments that could help bolster our exports.

Why is India struggling to attract such investments? Let’s take a look at what competitors like Vietnam have done right in this space, which India too could, and potentially in quick time.

Mr. Chandrasekar’s missive to his colleague in the government emphasises the need for cutting back on tariffs. Lobbies for Apple and other electronic giants describe our tariffs as high and that the likes of China and Vietnam are more attractive for investors.

Given that firms from several western nations are looking to shift supply chains away from China, Vietnam and other East Asian nations seem poised to grab a good chunk of that pie, while India, despite its aspirations, has lagged.

And in the letter, he says, “The geopolitical realignment is forcing supply chains to shift out of China … We must act now, or they will shift to Vietnam, Mexico and Thailand.”

And sure enough, the change in trends is showing up in statistics. For the first time in 20 years, the US in 2023 imported more from Mexico than it did from China.

India would have liked to have been the one to topple China in that ranking but it did not.

The Reuters article cites U.S. Ambassador to India Eric Garcetti as having recently said that foreign investments were not flowing into India at the pace they should be, and were going to countries like Vietnam instead, because of the tariffs, especially on inputs, or in other words raw materials that go into making a whole product.

“If you tax inputs … you’re not protecting a market. What you are doing is limiting a market.”

So what can India do outpace a rival like Vietnam? After all, India has taken some steps around taxation and performance-linked incentives. In the Feb. 2019 Budget, India announced a 15% flat tax rate for new investments in manufacturing units. Its performance linked incentives have bolstered select sectors such as electronics but not all the others that the country wanted to spur.

In a recent article, Biswajit Dhar, Distinguished Professor, Centre for Social Development, New Delhi, said that the aim of the PLI scheme was to raise the share of the manufacturing sector in gross value added from 16% in 2014-15 to 25% by 2022 (PIB 2018). Instead, the share of the sector has declined to below 15%, he wrote.

In his piece, we read, “Industrial policy was successfully implemented in the East Asian region because the governments used a combination of policies to ‘accumulate physical and human capital, allocate this capital to highly productive investments and acquire and master technology to achieve rapid productivity growth’.”

In the video above, we spoke to Prof Dhar to understand exactly what others have done right and India hasn’t, yet. What emerged is that China, and the China model replicated by Vietnam, have shown that physical infrastructure thanks to which companies only need to come in and plug and play, human skills development and an ecosystem that has developed in tandem – such as railway connectivity and port reforms – alongside labour laws are critical to building investor confidence.

Did you know?

Exports accounted for only 25% of India’s smartphone production worth $44 billion last year, compared with 63% of China’s $270 billion worth of production and 95% of Vietnam’s $40 billion worth.

Last week’s quiz question

A small amount of inflation is good because it makes people buy items now rather than later to help save on expenditure, in the knowledge that costs will keep going up. This spurs consumption. As demand goes up, companies tend to produce more, invest more in manufacturing and hence create more jobs.

Deflation has the opposite effect. It makes people wait before spending, in the anticipation that prices could fall further. This lowers consumption, tempers demand. Companies then tend to produce less, invest less and there are fewer jobs created or worse, potential job loss. In the latter case, workers have even less to spend and this creates a vicious cycle.

Script and presentation: K. Bharat Kumar

Production: Shibu Narayan