Global Trade Disruption and India's Strategic Response
The world economy is currently experiencing a significant disruption in trade. Historically, risk perceptions have been minimized in favor of globalization and the orthodoxies driving economic decisions. The optimism around diversification has led to a reduction in tariffs, with WTO members applying simple average tariffs below 10% on a most-favored nation basis. However, unilateral tariff liberalization by developing countries has been countered by distorting subsidies and non-tariff barriers in developed countries, creating a legitimacy crisis for the WTO.
Impact on World Trade and GDP
- Between 1995 and 2023, world trade in goods and services grew at an average rate of 5.8% per year.
- This growth outpaced the global GDP, which averaged 4.4% per year.
- The trade-to-GDP ratio increased from 20% in 1995 to 31% in 2022, before dropping to 29% in 2023.
Challenges for Developing Countries
Despite growth in trade, developing countries have struggled with global finance, investment flows, and technology transfer. This has limited their ability to build capacities and innovate. Technological learning, R&D, and government support are crucial for enhancing technological opportunities aligned with national needs.
India's Hi-Tech Trade Dynamics
- India is rapidly growing as an exporter of hi-tech goods.
- Imports of hi-tech products are largely from China, while exports are linked to the US.
- Dynamic industrial policy aimed at technological deepening is needed to address trade deficits in the hi-tech sector.
Sectoral Insights
The pharmaceutical sector in India has shown strong technological learning, especially during the COVID-19 pandemic. Intellectual property rights pressures remain a challenge. India's smartphone sector has become a major exporter, with over 70% share captured by iPhones, thanks to government incentives and proactive interventions.
Innovation and Technology Policy
Innovation in the electronics sector can be boosted through strategic policies on parts and components. The automobile sector exemplifies successful technology transfer and spillovers. Co-creation of knowledge between the public and private sectors is essential for reducing dependency on external technologies and achieving resilient growth.