India's Challenges and Opportunities Amid US-China Trade Tensions

Policymakers in Delhi view the US-China trade war as an opportunity for India to fill the gap left by China's massive export market. However, beneath this optimism lies a more complex reality.

The Scale of China's Export Power

• In 2024, China exported goods worth $439 billion directly to the US.
• When considering indirect exports via countries like Vietnam, Malaysia, Cambodia, and Mexico, this volume increases significantly.
• India lacks the industrial depth and logistical capability to replace China's supply at this scale.

Timing and Trade Realities

• The collapse of trade between Washington and Beijing has potential for disruption, but a prolonged standoff could lead to quickly emptying American shelves.
• Many top vendors on platforms like Amazon are China-based, impacting supply of electronics, toys, apparel, and household goods.
• Any surge in Indian exports is likely to be short-lived due to the potential for a resolution between the US and China.

India's Manufacturing Sector

• India's manufacturing sector is fragmented, low-tech, and not equipped to replace China's exports.
• Traditional exports like textiles, garments, and jewellery have not scaled with global demand.
• The pharmaceutical sector stands out, supplying nearly half of America's generic medicines.
• Challenges include quality issues, inadequate infrastructure, policy inconsistency, and a shortage of skilled labour.

Logistical and Regulatory Impediments

• Regulatory compliance is complex, with numerous documentation requirements.
• Transport infrastructure, including roads, railways, seaports, and airports, is inefficient and congested.
• Landlocked regions face connectivity issues, significantly impacting export efficiency, particularly for agricultural produce.
• The Indian Railways, despite being large, suffers from ageing equipment and inadequate modern systems.

Dependence on Imports

• India's dependency on imports, especially from China, is increasing.
• In 2023-24, 63% of solar equipment imports came from China, which dominates global polysilicon and solar-module production.
• Indian manufacturers of various products rely heavily on Chinese components.
• Approximately 70% of active pharmaceutical ingredients used in Indian drug manufacturing are sourced from China.

Building Global Competitiveness

• Achieving competitiveness requires long-term investments in education, vocational training, ease of doing business, and technology transfer.
• There is a need to foster competition and support budding export champions.
• The "Make in India" initiative has not achieved its goals due to a lack of these foundational elements.

Conclusion

India's capacity to seize opportunities from geopolitical shifts is limited by its current industrial and logistical inadequacies. The challenge is not just about external opportunities, but also internal readiness and the dedication of political and bureaucratic leadership to drive change. The sense of urgency and dedication seen in East Asia's economic miracles is required to transform India's economic landscape.