The US termed Prime Minister Narendra Modi’s just concluded America visit as “extraordinarily successful,” and pledged to deepen economic relations by agreeing to increase the two-way trade from $100 billion currently to $500 billion (for this target has not been set). This phenomenal development speaks volume of mutual understanding of the two nations.
As on the trade front, all this was missing 23 years ago when India was residing in the closet of the much restrictive ‘License Raj”. Claw of moribund trade governing rules had imperiled the country economically. But thanks to the sustained government’s efforts, India is now making headlines as one of three economic powerhouses in Asia. According to the latest HSBC report, India has the potential to become world’s 5th largest exporter of goods by value by 2030. Indeed, the post reforms period has pushed India to break barrier of the past to experience rendezvous with international commerce and trade.
Going by estimates, since 1991, the country registered 5 to 6 per cent growth with it touching all time high in 2009 when it recorded 9 per cent growth after it seized opportunity availed by liberalization. Thus export is the key to India’s drive towards growth. To give it a new shape and currency, the Ministry of Commerce is about to come up with new trade policy to boost manufacturing and exports which include service exports, standards and branding of products. India’s exports in the last three years have been hovering around $300 billion. In 2013-14, they stood at $312.35 billion, $300.4 billion in 2012-13 and $307 billion in 2011-12. Goal is to push exports target to $350 billion in 2014-15 and over $400 billion in 2015-16. To this effect, fixing new rules for special economic zones, reviewing of free trade agreements, giving incentives for domestic value-added products are in the pipeline and this is what signals coming from the Ministry of Commerce suggest.
China – still the largest trading partner
However, it is China, despite sharing tenuous relations with India, which is currently the largest trading partner of the country. Within hours of Chinese Xi Jinping’s maiden visit to India on September 17, companies from the two countries signed 24 trade contracts of worth around $4 billion. From aircraft leasing and financing to telecom, chemicals, wind power component and cotton yarn formed the list of contracts that Indian and Chinese companies signed for trade and commerce.
Last year, the two-way trade reached $70 billion. But while India’s export basket was worth about $30 billion, China was leading the race with it having $40 billion of trade surplus over that of India in 2013-14. To compensate the awning trade deficit with India, China has agreed to compensate by developing two industrial zones – one in Gujarat and another in Maharashtra, besides investing in railways and other infrastructure related projects. This apart, Beijing has agreed to look on New Delhi’s keenness to remove barriers on the entry of Indian medicines and IT sector into Chinese markets.
US and EU – significant partners for India
With the US, the second largest trade partner of India, New Delhi enjoys trade surplus. In 2013-14, India-US trade accounted for 8 per cent of New Delhi’s total foreign trade. While exports to America accounted for 12.5 per cent of total exports, imports from that country accounted for 5 per cent of total imports. According to the data available from the Ministry of Commerce, the two-way trade in goods reached $100 billion in 2013-14, registering 1.7 per cent growth over the previous year.
The European Union has emerged as a significant partner of India on trade and commerce front. Today, India is 28 countries’ block’s tenth largest trading partner. Bilateral trade between India and the EU amounted to 72.7 billion Euros in 2013-14. While India exported 36.8 billion Euros worth of goods to the EU, it imported 35.9 billion Euros worth of goods in 2013-14. Bilateral trade in services also achieved momentous growth. Services posted 23.9 billion Euros growth in 2013-14, with the EU enjoying a small surplus trade in services amounting to 1.5 billion Euros.
For the moment, India and the EU are in the process of negotiating a bilateral Broad Based Trade and Investment Agreement (BTIA) since 2007. Once this negotiation completes, the trade ties between two sides will witness robust growth in commerce and business ties of the two countries. Europe and America, together, account for around 31 per cent of India’s trade.
After America, it is United Arab Emirates, which is giving India a sense of comfort in meeting the objectives of their bilateral economic engagement. In 2013-14, the two-way trade reached $60 billion. While India’s export basket to UAE, comprises of mineral fuels, natural or cultured pearls, cereals, gems and jewellery, manmade yarn, fabrics, metals, cotton yarn, marine products, machinery, equipment, plastic, tea and meat. Major items of import from the UAE include crude oil, precious or semi-precious stones, metal ores and metal scrap, sulphur, unroasted iron pyrites, electrical machinery and parts of iron and steel. It should be noted that UAE is the 4th largest source of crude oil imports. Across the Gulf nations, especially those from the Gulf Countries Council (GCC) bilateral trade in 2012-13 were $159.15 billion, marking a 7.86 per cent increase over the previous year. The GCC block comprises of six countries: Saudi Arabia, UAE, Qatar, Kuwait, Oman and Bahrain.
In the Middle-East region, Iran is sweetening the trade between the two countries. The bilateral trade between the two countries stood at $15.25 billion in 2013-14, by 2014-15, it is expected to cross the $20-billion mark. To increase bilateral trade, the government in April had waived the value addition norms for exporters shipping food and pharmaceuticals to Iran.
Better Trade ties for India globally
With 10-member Association of South Asian Nations (ASEAN), India’s trade ties are increasing by leaps and bounds. Currently, locked in around $80 billion a year, the two-way trade is about to witness a multiple rise over the next 10 years. As per a Standard Chartered Bank report, Indian exports into ASEAN over the next 10 years would rise dramatically to $280 billion a year from $ 33.13 billion in the 2013-14 financial year.
Petroleum products, organic chemicals, vehicles (including auto parts), pharmaceuticals, gems and jewellery, apparel and clothing accessories are key Indian exporting items to ASEAN, the group with which India has free trade agreement (FTA) in goods. In services and investment, India has just ratified the FTA with ASEAN. With this in force, the two-way business volume will increase. The creation of the ASEAN Economic Community (AEC) by the end of 2015 will also dramatically reshape the economic landscape.
Rise expected in Indo-Japan trade
With Japan, India’s bilateral trade is not in happier position. In 2012-13, two-way trade reached above $21 billion. But given the rise in India-Japan relations, it is going to witness a sharp increase. During Prime Minister Narendra Modi’s Japan visit, the two countries talked about rising it to $30 billion by 2016. India’s primary exports to Japan have been petroleum products, iron ore, gems and jewelry, marine products, oil meals, ferroalloys, inorganic/organic chemicals. India’s primary imports from Japan are machinery, transport equipment, iron and steel, electronic goods, organic chemicals, machine tools. The share of the India-Japan bilateral trade has hovered in the range of 2.21 to 2.46 of India’s total trade during the last five fiscal years. This is quite small considering the size of the two economies.
Africa and others – encouraging trading links
With Africa, India’s bilateral trade is surging up year after year. While bilateral trade was just $1 billion in 1995, by 2014, it has climbed to more than $75 billion. Oil is key source of import from Africa, while gems and jewellery constitute major source of India’s export to the continent. Trend of Indian investment in Africa is also positive. Overall, Indian investment in Africa is believed to be around $40 billion.
In the South Asian region, Bangladesh has replaced Sri Lanka as India’s largest trade partner. In the current financial year, India’s trade with Bangladesh rose to $4.5 billion from $3.3 billion last year. According to the Ministry of Commerce, increase in custom duty on imported automobiles from India is the key reason for decline in trade volume. Yet, this phenomena is across the board. In spite of being India’s close neighbours, New Delhi’s trade with South Asian countries is merely $20 billion.
With Latin America, India’s trade was pegged at $42 billion in 2013. If experts are to be believed, this figure could go up to $100 billion if India and Latin American countries address issues like enhancing connectivity and leverage multifarious win-win opportunities in areas like energy, agriculture, food processing, textiles, IT and transport. Overall, India trade is estimated to be over $900 billion currently, and by the end of this financial year, it is about to touch $1 trillion threshold mark, an achievement which will put in the group of few countries in the world.
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