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India's export growth has been hampered over the past decade due to a combination of high import tariffs and low foreign direct investment (FDI) in mid-tech manufacturing sectors, according to a report by HSBC.
The report suggests that potential trade tariffs under U.S. President Donald Trump's administration could serve as a catalyst for change, provided India implements deeper reforms. It said "The combination of high import tariffs and low FDI in mid-tech sectors has hurt India's export potential over the past decade. One positive from the potential US trade tariffs is that they could become a catalyst for change, but reforms must run deep". The study in the report examines India's economic performance over two distinct periods: the "high growth" decade (FY01-FY10), when the country experienced rapid economic expansion, increased global export share, and strong investment inflows, and the "lower growth" decade (FY11-FY20), when these factors significantly weakened. During the second period, India's FDI inflows were less focused on mid-to-low-tech industries, such as food processing, apparel, furniture, and toys--sectors that are crucial for job creation and export competitiveness. The report analysis points out that India did not benefit as much as Southeast Asian nations, particularly ASEAN countries, from shifts in global supply chains during Trump's first presidency. Vietnam, for example, made substantial gains in industries such as electronics, apparel, and footwear, positioning itself as a key alternative to China. Meanwhile, India's efforts to attract FDI in similar sectors have lagged, despite its potential. The report suggested that India could get a second chance if global supply chains are restructured again under Trump's leadership. With new tariffs likely to be imposed on large exporting nations like China, global businesses may look for alternative production bases. This could open opportunities for India to strengthen its position in mid-tech manufacturing and labour-intensive sectors. However, the report also warned that for India to capitalize on these opportunities, significant policy changes and structural reforms are needed. While India has already made inroads in some key sectors, such as electronics, the report emphasizes that further efforts are required to enhance competitiveness, attract investment, and integrate more deeply into global supply chains. Despite these potential long-term gains, the report also cautions that in the short term, uncertainties in global trade and economic conditions could weigh on India's GDP growth. With challenges on multiple fronts, proactive reforms will be crucial to ensuring India does not miss out on the next wave of global trade realignments. (ANI)
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