Global Trade Shifts and India's Strategic Challenges
Recent changes in global trade dynamics, particularly due to the United States' heightened import tariffs, have intensified discussions on economic competitiveness. This situation presents both challenges and opportunities for India as it seeks to improve its stake in global markets.
India's Manufacturing Sector and Global Value Chains (GVCs)
- India's integration into manufacturing GVCs is limited, with its manufacturing export share stagnating around 1.7% in 2017 and 1.8% in 2023.
- In contrast, Vietnam's share increased from 1.5% to 1.9% during the same period, highlighting India's need to overcome structural barriers.
- The CSEP Competitiveness Index compares India with other Asian economies like Malaysia and Vietnam across six pillars of manufacturing competitiveness.
Structural Challenges and Economic Performance
- India faces structural issues such as high tariffs, low R&D investment, and limited FTA engagement, impacting its competitiveness.
- The manufacturing sector's GDP share has declined from 16% in 2015 to 13% in 2023, despite policy efforts.
Key Strategic Areas for Improvement
- Tariff Rationalization: High tariffs inflate input costs, reducing export competitiveness. Comprehensive tariff reduction is essential.
- FTA Engagement: India must deepen FTAs with new and existing partners, focusing beyond traditional tariff reductions to include technology transfers and services trade.
- Regulatory Reform: Current regulations hinder firm growth. Simplifying labor laws and improving urban planning can boost competitiveness.
- Technology Adoption: Increasing R&D investment is critical. India currently invests only 0.6% of GDP in R&D, lower than competitors like Malaysia (0.9%) and Thailand (1.2%).
Employment and Economic Growth
To tackle its employment challenge, India aims to increase manufacturing's GDP share to 25% over the next decade, requiring a 13.6% annual growth rate. A robust manufacturing sector is key for generating jobs for semi-skilled and unskilled workers transitioning from agriculture.