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India faces challenges to become a dominant country in global trade

Published on 21st Jan, Edition 04, 2013

 

India is the tenth largest economy of the world with GDP growth of 5.3 percent. India has USD 295 billion in reserves on as December 2012. India’s literacy rate is 74 percent which has grown year on year. The country is a major player in the global market when it comes to Trade. The textile, automotive, banking and technology industry is considered the best in the world. Major multinationals, those with no presence in Pakistan are running successful businesses in India. The country in the current textile policy from 2009 2014 has laid special focus on technological upgradation, agriculture, handlooms, handicraft, gems and jewelry, leather, marine, electronics and IT hardware manufacturing Industries, green products, exports of products from North-East, sports goods and toys sectors.

India has excelled in Human Capital, education, training and development. More and More Indians are acquiring strategic positions Fortune 500 companies. Majority of key positions in the financial sector of UAE are held by Indians. The Indian Institute of Technology (IIT) and Indian Institute of Management (IIM) are considered one of the best institutions globally with recruitment of students done directly for international placements. Indian, Chinese and Pakistani students alike are considered the brightest minds in USA and almost always achieve the highest distinction in education. USA imported USD 37 billion worth of goods from India in 2012 and exported USD 20.09 billion to India during the same period which shows the quantum of trade with just one country.

India with ever growing industry is increasing its export presence with increased capacity and reduced costs. Indian textiles are now being exported as far as South America. India has introduced zero duty for certain engineering products, electronic products, basic chemicals and pharmaceuticals, apparel and textile, plastics, handicrafts, chemicals and allied products and leather products to boost the industry. This scheme is being expanded to cover more export product groups including marine products, sports goods, toys, rubber and rubber products, additional chemicals and allied products. India just as western markets aims to become a hub for production and export of green products and technologies. To achieve this objective, special initiatives have been taken to promote development and manufacture of such products and technologies relating to transportation, solar and wind power generation.

India takes part in exhibitions throughout the world to introduce products to international buyers. The government has laid special attention to export of jewelry made of precious gems gold, platinum, silver and diamonds. India to boost domestic industry has made it mandatory that’s certain percentage of local components must be included in the manufacturing of products and electronics. The Indian software industry particularly is the one that western markets observe closely as many Indian firms compete with Silicon Valley. India recognizes the importance of intellectual property (IP) to sustain economic growth and has committed to increasing the percentage of its GDP spent on Research and Development from 0.25 percent to 2 percent.

 

Despite the above mentioned positives, India is also second most populous country in the world with over 1.21 billion people. India is projected to be the world’s most populous country by 2025, surpassing China, its population to reach 1.6 billion by 2050. With increase in population, the demand for food, products and services is on a rise. In December 2012, India’s exports were valued at USD 24.9 billion from USD 25.3 billion in the same month the previous year, and imports were valued at USD 42.5 billion in December 2012 from December 2011 figures of USD 40.0 billion. India is facing pressure with rising imports despite policies which support the domestic industry. As GDP is on a rise and expected to grow, inflation too is expected to remain in double digits. The oil import bill continues to rise and is the world’s fourth largest oil importer. India’s oil import bill in FY12 was USD 140 billion. It is also expected that the value of Indian Rupee relative to the dollar will be depreciated as part of monetary policy measures to boost exports and compete with regional players. India pulled exports USD 307 billion in FY12. The government defined a target to achieve exports of USD 360 billion against which the country is expected to fall short by USD 40 billion approx.

With uncertainty and debt situation in the US economy and impeding European crisis, the government wants to diversify into other markets. It is expected that if India is successful in exploring new markets, the trade deficit will decrease to USD 40 billion to USD 45 billion by FY13. International commodity and raw material prices have increased by more than 10 percent year on year for the last three years which has hindered business. With respect to diversification, India wants to increase presence in South America and Middle East. International banks and rating agencies follow the Indian markets just as China to keep a view on investment opportunities.

Based on short term initiatives, the government wants to double exports to Africa by 2015 through export of jewelry gems and minerals. Additionally, the government also wants to boost the tourism industry of India and is investing heavily in resorts and hotel the industry. Just as the branding exercise “Malaysia, Truly Asia”, India has promoted northern areas, architectural marvels and Goa to attract international visitors for foreign exchange.

Despite having a vibrant trade industry, inflation is on a rise and expected to remain in double digits. It is expected that if India is not able to reduce the trade deficit despite increase in exports and imports alike, Fitch and Standard & Poor’s may announce another drop in credit rating on India within the next fiscal year which may adversely impact foreign investments. India has a strong industry and is expected to grow consistently. According to estimates, if India continues to grow at 5 percent per year, the country may surpass China in exports by 2035. All eyes are on India to witnesses if the country can meet an aggressive trade target in FY13.

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