India had ‘limited success’ in capturing ‘China Plus One’ opportunity: NITI Aayog
4/12/2024 - Updated 1:34:11 pm
Courtesy: The Indian Express
This comes just a day after the two large economies, the US and China, entered into a fresh trade conflict, imposing tit-for-tat trade restrictions on each other.
Even as a new NITI Aayog report, the ‘Trade Watch’, released on Wednesday, says that India has seen “limited success so far” in capturing the ‘China Plus One’ strategy adopted by multinational companies looking to de-risk their supply chains, NITI Aayog CEO BVR Subrahmanyam has suggested that trade policies under US President-elect Donald Trump could result in a potential economic boom for India, driven by significant trade diversion in global trade. “Whatever Trump has announced so far, which is likely to come up… there are opportunities. We are the man at first slip. The ball is coming in our direction. Whether we hold the catch or drop it is for us to decide. There will be huge disruption, and if we prepare for it, there will be a massive boom due to trade diversion,” Subrahmanyam said during a press briefing. This comes just a day after the two large economies, the US and China, entered into a fresh trade conflict, imposing tit-for-tat trade restrictions on each other. After the US announced export restrictions on computer chip-making equipment, software, and high-bandwidth memory chips, China retaliated on Tuesday by banning exports of gallium, germanium, antimony, and other key high-tech materials to the US. The fresh trade war is significant because “connecting economies”, perceived as neutral and not aligned with either the US or China, such as India, have benefited from the geopolitical tensions between the two nations since Trump’s first term. Responding to a question about Trump’s recent tariff threats, the former commerce secretary noted that the US is India’s largest trading partner and that India-US relations extend beyond trade, being deeply rooted in geopolitical and cultural dimensions. “There is a huge upside in improving trade in goods and services. There is 70 per cent of world trade where our share is less than 1 per cent. This is where the opportunity lies. We need to explore new markets and new products,” Subrahmanyam said. On a proposal for a 25 per cent hike in steel import duties, Suman Bery, Vice Chairperson of NITI Aayog, commented: “There are points of principle and there are points of pragmatism. If someone produces cheaply in the world and others are buying, you are reducing your competitiveness by putting up a barrier, and there are downstream consequences for domestic market users of the product.” He added, “In this particular ca
se, we are talking about a source of supply which is not considered a market economy and is relatively opaque in its means of support to its industry, which is exhibiting a way of oversupply.” Notably, in Q1 FY25, Indian iron and steel exports experienced a massive decline (33 per cent), primarily due to weak domestic demand and excess capacity in China, which led to an oversupply of steel in global markets, the NITI Aayog report stated. On Trump’s trade policies, Arvind Virmani, member NITI Aayog, remarked that a general 10 per cent tariff by the US on all imports would not negatively affect India. “But a 60 per cent tariff on China will open up opportunities for India. In the short term, there could be a shock,” Virmani said. The ‘Trade Watch’ report, meanwhile, said that countries such as Vietnam, Thailand, Cambodia, and Malaysia have emerged as bigger beneficiaries of the ‘China Plus One’ strategy. Factors such as cheaper labour, simplified tax laws, lower tariffs, and proactiveness in signing Free Trade Agreements (FTAs) have played a crucial role in expanding their export shares. The report also highlighted that ongoing trade fragmentation stems from strict export control measures imposed by the US on Chinese goods to limit China’s growth and technological progress. While China remains India’s leading competitor across most export categories, countries like Brazil, Indonesia, and South Africa generally trail India. However, Malaysia and Thailand outperform India in select sectors, such as electrical machinery. For India, the iron and steel industry, which represents 23.5 per cent of its EU exports, faces the highest exposure under the Carbon Border Adjustment Mechanism (CBAM), the report said. Indian firms could incur tariffs of 20–35 per cent, leading to higher costs, reduced competitiveness, and lower demand in the EU market. “Compliance costs are also expected to rise due to the requirement for detailed emissions reporting,” the report said. “Several studies assessing the EU’s CBAM identify African and Asian countries as the most vulnerable to its effects. CBAM, aimed at preventing carbon leakage, will apply to high-risk imports such as cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen starting in January 2026. It mandates the purchase of CBAM certificates, reflecting the carbon emissions linked to these goods,” the report added.