Opportunities Galore In The East

Business Standard     17th June 2021     Save    
QEP Pocket Notes

Context: A deeper integration with East Asian economies could be integral to India’s economic recovery in the pandemic.

Recent trends in trade growth

  • Global trade has shown healthy signs of recovery since the last quarter of 2020 (Global Trade Update, UNCTAD, February 2021).
  • Goods trade has been in the lead in both quarters. Services trade has lagged behind.
  • The WTO goods trade Barometer, a composite leading indicator for world trade, with a value of 109.6 in May 2021, relative to an index value of 103.9 in the fourth quarter of 2020, is similarly indicative of a pick-up in global merchandise trade.

Trade opportunities for India in the East

  • Higher trade growth: Trade performance has been the strongest for East (including southeast) Asian economies.
    • While China leads in export growth performance, other East Asian economies, too, have gained market share during the pandemic period.
    • Vietnam stands out with an impressive gain in market share.
    • In some sectors, like office machinery, communications equipment and textiles, Vietnam, Thailand, Korea, and Taiwan have registered gains, while China has lost market share and competitiveness during the pandemic.
  • In congruence with Production Linked Incentive (PLI) scheme:
    • India’s recently announced PLI scheme to boost manufacturing and export capabilities in 13 priority sectors.
    • Among these priority sectors, electronics, communications and office equipment, motor vehicles, pharma, textiles, and apparel overlap with sectors leading global trade growth trends.
  • Trade diversification: India’s trade policy, which is also now strategically oriented to reducing single-source dependence for its imports, aligns well with the ASEAN post-pandemic recovery plan of diversification and broader regional integration.

Way Forward:

  • Push for value chain integration: In sectors such as textiles and apparel and motor vehicles that have the maximum potential for labour-intensive backward linkages.
    • This should include rationalisation of sector-specific import duty structures in motor vehicles, electronics and textiles, and facilitating imports of the latest machinery and technological upgrades in textiles.
  • Review tariff structures: India’s applied most-favoured-nation tariffs in manufacturing as a whole need to be reviewed and aligned better with global and comparator developing countries.
    • Providing preferential access to imports and markets will help attract foreign investment in these sectors.
    • Create a database of specific non-tariff barriers, in sectors of interest, with clarity on the distinction between non-tariff measures (NTMs) and NTMs that are used as NTBs.

Conclusion: Integrating with east Asia with a well-designed PLI scheme in sectors that are leading global trade recovery and a careful upgrade of its FTA with ASEAN could be integral to India’s economic recovery in the pandemic.

QEP Pocket Notes