Beyond Trade Deals: Ajay Srivastava

As India approaches its 100th birthday in 2047, the country has set bold targets: building a $40 -trillion economy and achieving $10 trillion in annual exports. While these numbers look impressive, India’s current export base, around $825 billion, shows just how steep the climb will be.

Success will need structural reforms that strengthen manufacturing, expand services beyond IT outsourcing, and firmly embed the country into the most valuable parts of global supply chains.

FROM ASSEMBLY TO PRODUCTION

About 80% of global trade revolves around goods, making manufacturing the backbone of any strong export strategy. Yet India’s competitiveness has been slipping, especially in traditional sectors like textiles, while its booming electronics sector still relies heavily on imported components, mainly from China.

This wasn’t always the case. Back in the late 1980s, India was neck and neck— or even ahead—of China in areas like computer hardware, pharmaceuticals (especially APIs), and textiles. But while China invested heavily in large-scale manufacturing, workforce training, and innovation, India took a different path. After its 1990s economic reforms, it cut tariffs and removed industrial licenses but ignored building a deep, resilient manufacturing base.

A particularly damaging decision came in 1996, when India signed the WTO’s Information Technology Agreement, committing to zero tariffs on a wide range of electronics. This left Indian producers vulnerable to cheap imports, especially from China, which soon surged ahead to dominate mobile phones, laptops, solar cells, electric vehicles, and critical minerals.

Today, India’s trade deficit with China has ballooned to $100 billion, largely due to imports of electronics, machinery, batteries, and active pharmaceutical ingredients (APIs). The reasons are clear: high logistics costs, regulatory hurdles, weak research and development (R&D), and small-scale manufacturing. Indian producers face input costs 10–25% higher than their Chinese competitors, driven by expensive electricity, high borrowing costs, import duties on inputs, and limited economies of scale.

While India’s production-linked incentive (PLI) schemes have boosted assembly operations, particularly in smartphones, they have not yet moved India into “deep” manufacturing, making of the core components themselves. Without this shift, India will continue to miss out on the real value-added parts of global trade.

BEYOND IT OUTSOURCING

India’s IT sector has been a bright spot, generating $160 billion in software exports in 2024 and transforming India into a respected technology hub. But too much of this success has been based on outsourcing and labour supply, leaving India behind in cutting-edge fields like artificial intelligence (AI), deep tech, and cybersecurity, where countries like the US and China are racing ahead.

To secure its place in the global digital economy, India’s IT firms must stop seeing themselves as the world’s back office and start investing seriously in innovation, R&D, and indigenous capabilities.

Beyond IT, India’s services exports rely too heavily on the European Union (EU) and the US, with little presence in overseas markets through commercial establishments. But there’s a promising new wave emerging: “Other Business Services” (OBS), which includes business consulting, engineering, R&D, logistics, legal services, and advertising.

In 2024, India’s OBS exports totaled $80 billion, making up a 4.2% share of global trade in these sectors, compared to $160 billion from IT services. Globally, OBS is already twice the size of IT services and is growing faster. With the right policies and strategic focus, India could see its OBS exports surpass software exports by 2030 and hit the trillion-dollar mark well before 2047.

OPERATIONAL FIXES

In today’s fast-moving, supply chain–driven world, even minor delays at ports and customs can knock a country out of key global networks. India must modernise and automate its port and customs systems, fast-tracking 99% of clearances, cutting ship turnaround times to global best standards, and building a national trade network that integrates compliance, documentation, and payments into a seamless digital system.

India also needs to attract global anchor firms, companies that can act as sector champions and lift entire ecosystems. A perfect example is Suzuki’s entry into India in the 1980s, which didn’t just bring in cars but transformed the entire auto manufacturing landscape, boosting productivity by 250% over two decades. India now needs similar “Suzuki moments” across multiple industries to secure its place in global value chains.

RETHINKING TRADE DEALS

Free Trade Agreements (FTAs) are now a big part of India’s trade strategy. India has signed 14 FTAs with partners like ASEAN, Japan, South Korea, Australia, Switzerland, and the UAE. India has finalised a deal with the UK and is negotiating with the EU and the US.

But it’s critical to remember that FTAs cover less than 20% of global trade; the other 80% happens outside such deals. This means FTAs, while useful, can only help at the margins. They cannot replace the need for deep domestic reforms—reforms that make India’s manufacturing and services competitive, cut costs, streamline logistics, and lock India into the most profitable parts of global value chains.

ROAD AHEAD

If India gets these fundamentals right, the dream of a $10-trillion export economy by 2047 is well within reach. But if the country continues with the slow, superficial approach of the past 25 years, high export growth will remain an illusion.

India’s trade agenda for the next two decades must be about reshaping the foundations of its economy to compete and win on the world stage.

Views are personal. The author is the Founder of the Global Trade Research Initiative.