If India has to become a developed country, it must push its exports because there is only so much it can consume domestically. China's stupendous economic growth was boosted by its exports. India must focus on exports to achieve a consistent 10 per cent economic growth in the long run, Arvind Panagariya, Chairman of the 16th Finance Commission, has said. The government is already trying to increase exports through various measures.
Despite global trade uncertainties, India's exports are charting a new course with bilateral agreements, free trade agreements (FTA) and uncharted territories like Africa, Latin America, and Central Asia. India has seen a surprising surge in exports of precious metals, minerals, automobiles, electronics, pharmaceuticals, organic chemicals, textiles, spices and defence equipment. The implementation of initiatives such as Production-Linked Incentives (PLI) and the Make in India campaign has fueled export growth, particularly in electronics. India’s mobile phone exports surged 35% to a record $15 billion in FY24 from $11.1 billion in FY23, according to government data. The government is now planning to develop e-commerce hubs in the country to broadbase India's export industry. Last year, the cross-border e-commerce trade was about $800 billion and it is estimated to reach $2 trillion by 2030. However, India's shipments through online medium is only $2 billion while China's e-commerce exports are about $350 billion,
Just as India tries to tap a huge export opportunity despite emerging and persisting geopolitical tensions that restrict movement of goods, it also faces strong challenges ranging from quality and trade restrictions. Two years ago, India-made cough syrups were linked to deaths of children in several countries. Now, Indian spices have come under scrutiny for contamination.The developed countries are also putting environmental restrictions on India's exports.
Wrong turn on the spice route
Hong Kong and Singapore have reportedly banned the sale of popular Indian brands MDH and Everest after detecting carcinogenic chemical ethylene oxide in their products. This led to a mandatory recall from shelves. The primary violations in these incidents include the presence of ethylene oxide, a carcinogen used as a fumigating agent, and salmonella contamination, a common bacterial cause of foodborne illness.Besides Hong Kong and Singapore, the US, Australia and Malé too have raised questions on the quality of spices supplied by Indian makers. India exported spices worth $692.5 million to these countries in FY24.
Economic think-tank Global Trade Research Initiative (GTRI) has said that nearly $700 million worth of India’s spice exports to critical markets are at stake due to cascading regulatory actions in many countries. It cautioned that if the EU follows suit with a rejection across the the bloc, it could impact an additional $2.5 billion of India’s spice exports.
As per GTRI co-founder Ajay Srivastava, despite denials of any wrongdoing by major companies like MDH and Everest, their continued rejections by international bodies should have raised alarms with both the Spices Board and FSSAI much earlier. Following international criticism, both the Spices Board and the Food Safety and Standards Authority of India (FSSAI) began routine sampling, yet no definitive statements about spice quality have been issued by these or any other government agencies, he said.
India has made a strong pitch at the World Trade Organization (WTO) for the formulation of guidelines to determine default maximum residue limits (MRL) in the absence of international standards. The traces pesticides leave in treated products are called residues and MRL is the highest level of a pesticide residue that is legally tolerated in food or feed. In a recent submission to the WTO, India said that stringent MRLs can be trade-restrictive and act as non-tariff barriers to international trade, disproportionately affecting exporters from developing countries. At present there are no uniform international standards.
Diamonds under pressure
Diamond exporters in India are in a dilemma as their buyers of cut-and-polished diamonds in the US and Europe are demanding source declarations for even small diamonds that are currently exempt from sanctions imposed on Russia following the Ukraine invasion. All diamond houses in India have been alerted that missing paper trails and sloppy records would land them in trouble under the new sanctions regime that began on March 1 to block Russian gems from the affluent western markets.
From September, the Group of Seven (G7) advanced countries wants all rough diamonds to be verified in Belgium to ensure none have been imported from Russia. It is establishing “diamond traceability centres” in Brussels to eliminate all diamonds that originated in Russia.Indian diamantaires had anyway stopped buying rough diamonds from Russia following Western sanctions, replacing them with
roughs bought from the trading division of Anglo-American mining conglomerate De Beers for polishing and export.
But the G7’s diktat to certify all rough diamonds at Belgium’s new traceability centres from September means Indian exporters will have to ship roughs to Brussels before getting them back certified as not being of Russian origin before refining and exporting them. This will add to their overall costs.
Trouble in the pharmacy of the world
India over the last decade or so may have positioned itself as the ‘pharmacy of the world’, yet it struggles to establish itself as an elite player due to quality issues. Lax regulation and poor manufacturing practices have been held responsible for Indian medicines allegedly leading to deaths in some parts of the world. The World Health Organization (WHO) and other health agencies linked contaminated India-made cough syrups to the deaths of 70 children in Gambia, 65 in Uzbekistan and at least six in Cameroon in 2022.
The country's drugs and pharmaceuticals exports increased 9.67 per cent year-on-year to $27.9 billion in 2023-24, even as the total exports dipped by 3 per cent in the last fiscal. India's pharmaceutical industry is the third largest by volume and the 13th largest by value in the world, producing more than 60,000 generic drugs across 60 therapeutic categories. The government has rolled out two production-linked incentive (PLI) schemes to promote domestic manufacturing of key pharmaceutical ingredients and generic medicines.
Yet, poor manufacturing practices, failure to meet the best global standards and lax regulation pose a big challenge to pharma export growth. If India has to reach its huge growth potential in the pharma exports, it must tighten rules and streamline regulatory apparatus.
Green barriers
Policymakers worldwide are seeking to reduce carbon emissions in their fight against climate change, with steel traditionally among the most polluting industries. Europe’s Carbon Border Adjustment Mechanism (CBAM) aims to subject imported goods such as steel to a levy to ensure its own strengthened pollution standards aren’t undermined by trading partners. CBAM, along with other green trade barriers, can potentially deliver a big hit to Indian exports to the European Union (EU).
Indian steel mills have been among the most vocal about the potential impact of the tax, dubbing it a trade barrier, while the idea has triggered a hostile reaction from Russia and China too.
India has expressed serious concerns in a WTO meeting in Abu Dhabi recently over the increase in the use of trade protectionist measures by certain countries in the name of environment protection. Earlier too, India had flagged issues over the EU's decision to impose carbon tax on sectors such as steel and fertiliser; and adoption of deforestation regulation by the 27-nation bloc.
The CBAM will come into effect from January 1, 2026 for seven carbon-intensive sectors, including steel, cement, fertiliser, aluminium and hydrocarbon products. The CBAM will translate into a 20-35 per cent tax on select imports into the EU. India's 26.6 per cent of exports of iron ore pellets, iron, steel, and aluminium products go to the EU. These products will be hit by CBAM. India exported these goods worth $7.4 billion in 2023 to the EU.
Indian steel producers operate at a carbon intensity level well above the EU and global level, potentially exposing them to elevated charges, as they rely mainly on coal-based processes, Goldman Sachs analysts have said. Among producers, Tata Steel Ltd. and JSW Steel Ltd. have the most direct exposure to the region, Goldman said, highlighting risks of weaker margins or lower sales.
The Asian Development Bank (ADB) has said in a recent report that the EU plan to impose tariffs on high-carbon imports could hurt developing countries in Asia but is unlikely to lead to big reductions in greenhouse gas emissions.
India's exports of products like coffee, leather hides, and paperboard worth $1.3 billion annually to the European Union are likely to be impacted due to the deforestation regulation adopted by the EU in May 2023.
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