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Can India's Foreign Trade Policy Under Modi Secure Economy & National Interest?

A weaker rupee adds to India’s woes while expanding current account deficit and making goods imports more expensive

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Opinion
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Can India's Foreign Trade Policy Under Modi Secure Economy & National Interest?
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The Nehruvian origins of India’s post-independence foreign policy outlook followed a reasonably inferred non-alignment strategy. The broader reason to do so, was to enable India as a young independent nation then, to create its own position in the geo-economic and political landscape, without taking any sides.

This was true of the US-Russia cold war decades too, even though under the years of Indira Gandhi as Prime Minister during the 70s, the tilt in India’s ties to support Russia and much of the communist world (Cuba included) positioned against the US was made more explicit. Post-liberalisation reforms of the 90s, a tilt in trade alignment happened more extensively towards the US.

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India’s Foreign Policy Stands 'Modi'-fied

Fast forward to post 2014, under Modi, India’s post-independent Non-Aligned strategic stance has observed a dynamic shift towards a Multi-aligned strategic interest, one which the External Affairs Minister S Jaishankar often highlights while emphasising on the need for “New India” to prioritise “India’s interests” over anything else to compete in a multi-polar world.

However, there is a cost to being vaguely multi-aligned (It is even difficult to know what ‘India’s interests’ are: Short term vs. long-term).
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How India’s Neutrality on Russia-Ukraine Can Affect Digits

As seen in the Russia-Ukraine war situation, India is likely to pay the moral and maybe an economic cost in the future of supporting a nation such as Russia that breached another nation’s (Ukraine’s) territorial integrity— a stance that has invoked a lot of criticism against India’s ‘debatable’ position on the war and in explaining its “abstention votes” in the United Nations.

Is it in India’s “interests” to take sides with Russia or not do much to counter it or, even participate as a mediator in the conflict? Surely, it is ‘debatable’. And one says ‘debatable’ given India’s own economic ties with Russia (in terms of trade which isn’t much) as against all countries (US, EU, UK with whom India has sizeable trade exposure) and, a mutually allied network in collectively countervailing China.
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Notwithstanding India’s position on the Russia-Ukraine war and its likely impact, a good way to get a sense of deconstructing India’s vaguely defined multi-aligned stance (as termed by Jaishankar) is to (geo)economically study India’s trade relations with some of the countries that seems to be otherwise competing (or pitted against each other): say, Taiwan-China, United States-Russia, UK-EU (post Brexit)

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What India’s Trade Relations Imply for Its Economy

India’s total export of 275,488,744.93 in thousands of USD and total imports of 367,980,363.48 in thousands of USD has lead to a negative trade balance of -92,491,618.55 in thousands of USD. It’s trade growth has been around -8.75% compared to a world negative trade growth of -3.91%.

A weaker rupee is adding to India’s woes while expanding the current account deficit, making imports more expensive in merchandise.

Modi government’s ‘Make in India’ policy push under a weaker, more import-intensive trade regime might face stiffer resistance under the current macroeconomic realities. Moreover, any perceived competitive advantage of ‘cheaper’ exportable goods and services (from a weaker rupee) remains yet to be realised.
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How India Trades Best With the US

The US surpassed China to become India’s top trading partner in 2021-22, reflecting a strengthening of ties between the two economic giants.

According to recent data released by the Ministry of Commerce, bilateral trade between the US and India stood at $119.42 billion against $80.51 billion in 2020-21. Exports increased to $76.11 billion in 2021-22 from $51.62 billion in the previous fiscal year while imports rose to $43.41 billion as compared to about $29 billion in 2020-21.

India-US Trade Analysis

The Quint 

America is one of the few countries with which India has a trade surplus. In 2021-22, India’s trade surplus was $32.8 billion with the US. Beyond services, major export items from India to the US include petroleum-polished pharmaceutical products, jewellery, light oils, and petroleum, frozen shrimp, whereas major imports from the US include petroleum, rough diamonds, gold, coal, waste and scrap, etc.
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Increased Russian Imports Arm India’s Bilateral Deal

Russia has been one of India’s largest arms suppliers and a key strategic ally in much of its post-independent history. More than half of India’s arms imports between 2016-2020 were from Russia.

India-Russia Trade Analysis

The Quint 

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As Sadanand Dhume argued in The Wall Street Journal: “Many Indian foreign policy elites also view what’s officially called the country’s ‘special and privileged strategic partnership with Russia as a totem of Indian strategic autonomy. India shares Russia’s goal of a multi-polar world. It is a member of the Russian and Chinese-dominated Shanghai Cooperation Organisation, and of BRICS, a loose grouping of Brazil, Russia, India, China and South Africa.”

Between 2020-21 and 2021-22, India saw a drastic rise in the imports from Russia. The % growth in imports went over 55% in a single year, even though the overall percentage share in export-import volumes with Russia is still nowhere as high as it is for EU-Russia relations or India-US or India-China trade relations.
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Chinese Electronic Exports Line Indian Markets

India’s relationship with China ever since the 1962 war has remained a complicated one. On trade, more recently, India’s dependence on Chinese goods remains more pertinent than ever before despite the border tensions that persist.

During 2021-22, India-China trade aggregated at $115.42 billion as compared to $86.4 billion in 2020-21.

65% of India's imports from China is limited to three product groups — electronics (30% share), machinery (20%) and organic chemicals, including APIs (15%).

Here are some products whose imports grew big during January-August 2022: mobile phones, telecom equipment, parts ($4.57 billion, a growth of 14.7%), solar cells ($4.3 billion, 110%), laptops, PCs ($4.3 billion, 16%), laptop memories, ICs, parts ($3.6 billion, 16.8%), lithium-ion battery, etc, ($1.4 billion, 103%).

India-China Trade Analysis

The Quint 

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Can India Get Over ‘Made in China’?

India is critically dependent on China for articles of everyday use as well as for industrial products such as mobile phones and laptops, components, solar cell modules, ICs, and more. Lithium-ion battery imports surged more than 100% during January-August 2022 year-on-year. The adoption of electric vehicles will increase this steeply.

Here are a few more products along with the value of India’s imports from China during January-August 2022: textiles and apparel ($1.7 billion), fertilisers ($1.2 billion), antibiotics ($895 million), glassware ($590 million), furniture ($534 million), paper and board ($469 million), shoes ($236 million).

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Can Taiwan Share India’s Chinese Import Burden?

The bilateral trade between India and Taiwan is on the rise. It has increased from $2 bn in 2006 to $5.7 bn in 2020, registering a 185% growth.

The latest monthly trade data also demonstrate healthy growth rates in Indian exports to and imports from Taiwan. However, the volume of bilateral trade remains underwhelming, given the potential. This is evident from the minuscule exports and imports share.

On the investment front, around 106 Taiwanese companies—with a total investment (actual and proposed) of about US$1.5 billion were operating in India in various sectors including information and communication technology, medical devices, automobile components, machinery, steel, electronics, construction, engineering, and financial services, by the end of 2018.

India-Taiwan Trade Analysis

The Quint 

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According to Abhijit Mukhopadhyay of ORF Delhi, in the last few years, India has been actively promoting cooperation with Taiwan in trade, investment, tourism, culture, education, and people-to-people exchanges. Both countries have also constituted teams for the expansion of fruitful collaboration in education and skill development.

“Indian Space Research Organisation (ISRO) and the Indian Institute of Space Science and Technology (IISST) are already collaborating with Taiwan’s National Space Organisation on different projects. Another possible area of cooperation exists in green energy. India is an energy-deficient country but needs to make the transition from fossil-fuel based energy to renewable green energy. On the other hand, Taiwan is one of the major Asian players in green energy and may turn into a gamechanger for India in this transitory phase," argues Mukhopadhyay.

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It is true that Taiwan’s main strength is in the machinery and electrical equipment sector which can help India in utilising this Taiwanese advantage to counter China and reduce its import dependence from it (China).

Taiwan To Aid in India’s Semiconductor Chip-Making

The Free Trade Agreement(FTA) talks currently between India and Taiwan are strongly pivoted around the proposal to build a semiconductor manufacturing facility in India. The Indian government has reportedly proposed several sites for the hub and negotiations are on to rope in one of Taiwan’s leading semiconductor manufacturers.

Names of companies like Taiwan Semiconductor Manufacturing Company (TSMC) and United Microelectronics Corporation (UMC) have come up in media reports as possible candidates for implementing this mega project.

If implemented, India will be the second hub of Taiwanese semiconductor manufacturers after the USA. However, the choice of location may be a difficult one as semiconductor production entails necessities like a pollution-free environment, an uninterrupted power supply, and the constant availability of a large amount of water.

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Will India-EU Trade Ties Improve After Negotiations?

On 17 June 2022, the European Union relaunched negotiations with India for a Free Trade Agreement, and launched separate negotiations for an Investment Protection Agreement and an Agreement on Geographical Indications (GIs).

The EU has been India's third largest trading partner, accounting for €88 billion worth of trade in goods in 2021 or 10.8% of total Indian trade. India is the EU’s 10th largest trading partner, accounting for 2.1% of EU total trade in goods.

Trade in services between the EU and India reached €30.4 billion in 2020.The current round of trade negotiations aim to remove barriers and help EU firms, especially smaller ones, to export more. Secondly, to open up services and public procurement markets. These also mean to ensure protection of geographical indications and pursue ambitious commitments on trade and sustainable development, and lastly, making sure, the agreed rules are enforceable.

India-EU Trade Analysis

The Quint 

The investment protection negotiations aim to provide investors from both sides with a predictable and secure investment environment, through commitments on: Non-discrimination, protection against expropriation without compensation and unfair treatment of investors and their investments, while preserving the right to regulate, and transfer of returns.

The investment protection negotiations also seek to put in place an effective and state-of-the-art dispute settlement mechanism to enforce such rules.

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Will India-UK Trade Under Rishi Sunak Flourish?

India-UK total trade in goods and services was 21.5 billion GBP from October 2020-September 2021. See figure below:

India-UK Trade Analysis

The Quint 

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Of this 21.5 billion (GBP), total UK imports from India amounted to 13.8 billion (GBP) while exports to India amounted to 7.7 billion (GBP). India has been the UK’s 15th largest trading partner. The UK exported goods worth 4.1 billion (GBP) and services worth 3.6 billion (GBP) to India during the period, and imported goods worth 7.7 billion (GBP) and services wither 6.1 billion (GBP) from India. The trade deficit for UK with India is roughly 6.1 billion (GBP).

It would be interesting to see how under Britain’s first Hindu PM Rishi Sunak, India’s FTA with UK goes about in terms of defining the nature of economic (trade) relationship between both nations. One must tread caution, almost always, with the perceived success of FTAs in improving subsequent bilateral trade relations between two nations, given what the mixed nature of academic evidence available on FTAs suggest.
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How India’s Partners Contribute to Multi-Aligned Trade

India’s largest trade volume is with US and China. Rise in exports to the US and imports from China in a single year (from 2020-21 to 2021-22) reflects the complexity of trade ties, necessitating a multi-aligned trade scenario, where India needs to leverage its relationship with Taiwan to reduce dependence on Chinese imports.

At the same time, balancing its relationship with Russia politically and economically, during wartime, will have consequences for its medium to long term trade ties with US and it’s other allies (including countries like the UK and EU).

All three— US, UK, EU are strategically and economically vital to India’s multi-aligned trade strategy. Other vital countries with whom India trades extensively include Saudi Arabia, UAE, Iraq, Indonesia, Singapore, Australia and Hong Kong.

Do also note how majority of the above nations (UAE, Saudi Arabia, Iraq, Indonesia) have a high representative of Muslim populations in their demographic profile and Modi’s domestic politics of hate and targeted persecution of minorities (especially Indian Muslims) has and will not go unnoticed in determining the future course of action whether in terms of trade or economic investment with these nations.
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A vaguely defined multi-aligned strategic convergence may sound rhetorically appeasing to some, but in closer scrutiny, geo-economics compulsions offer little in hope and realisation for India, if it remains unable to define its interests more coherently both for its foreign policy outlook in the near future and in defining its terms of trade with most of its trading partners, especially in the aftermath of the Russia-Ukraine conflict.

(Deepanshu Mohan is Associate Professor and Director, Centre for New Economics Studies, Jindal School of Liberal Arts and Humanities, OP Jindal Global University. He is Visiting Professor of Economics to Department of Economics, Carleton University, Ottawa, Canada. This is an opinion piece and the views expressed are the author's own. The Quint neither endorses nor is responsible for them.)

(At The Quint, we are answerable only to our audience. Play an active role in shaping our journalism by becoming a member. Because the truth is worth it.)

Read and Breaking News at the Quint, browse for more from voices and opinion

Topics:  Economy   Indian Economy   S Jaishankar 

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