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Informist, Friday, Jun. 13, 2025

 

 

By Krity Ambey and Priyasmita Dutta

 

 

NEW DELHI – Over a decade since the China+1 strategy emerged, India has garnered only limited benefit, with its exports accounting for a mere 1.8% of the global share. But India has the potential to double its share of exports within five years, if New Delhi adopts a meaningful liberalisation of the economy to capitalise on the China+1 strategy, said C. Veeramani, director and professor at the Centre for Development Studies. 

 

 

"I think this is a very appropriate opportunity for India because of the given geopolitical developments," Veeramani told Informist in an interview. "India is at an advantageous position to utilise the opportunity, but we need more opening up," he said.

 

 

The tariff conflict between China and the US, albeit on pause till August, does present an opportune moment for India to enter the global value chain. As the tariff war escalated between Washington and Beijing in April, and both the parties imposed a duty of over 100% on each other, the China+1 strategy gained relevance. 

 

The China+1 strategy refers to a business approach where companies diversify their operations and investments beyond China, typically adding one or more countries to their supply chain or manufacturing footprint, to mitigate risks and reduce dependence on a single market. Emerging economies, including Indonesia, India, Vietnam, and Thailand, that offer affordable labour, are the top choices for this strategy.

 

At this juncture, India must strive to attract global manufacturers, not just to produce and sell in the domestic market but to become the "factory for the world", Veeramani said. However, India's tariff structure poses a major hurdle in achieving this, according to the expert on global trade. 

 

"When you have high tariff rates, particularly for intermediate imports, and capital goods, it is not possible for you to become the factory of the world," Veeramani said. According to the World Trade Organization, India's weighted average tariff rate is 12%, compared with 5.1% for Vietnam, 5.3% for Indonesia, and 6.3% for Thailand.

 

While some level of tariff rationalisation has happened, but the scope was very limited, Veeramani said. "We need to extend that (tariff rationalisation) for a larger number of products. And we have to bring down tariffs for most intermediate goods, parts, components and capital goods to zero level."

 

In the Budget for 2024-25 (Apr-Mar), the government announced a comprehensive review of India's tariff rate structure on all industry goods and initiated the tariff rationalisation exercise. The announcement came after recommendations from economists and industry leaders at multiple pre-Budget consultations, couple of which Veeramani had also attended.

 

Besides tariff rationalisation, the government also needs to reduce non-tariff barriers, Veeramani said. "There are certain non-tariff barriers which are very important from the point of view of health or, security," the economist said. "Keeping those aside, other non-tariff barriers which are primarily meant for protectionism, must be removed." 

 

India's protectionist stance has taken a backseat in the recent months after the US President Donald Trump assumed office earlier this year. Trump, who has expressed displeasure over India's high tariff and non-tariff barriers at multiple instances, intends to impose a 26% extra tariff on Indian goods from July. As the US is India's top export destination, New Delhi is willing to cut duty under a trade deal with the US, to safeguard nearly 20% of its merchandise exports.  

 

"The free trade agreement that we have signed with the UK was a good thing. And we need to also do similar thing with the US," Veeramani said. Under the FTA with the UK concluded just last month, New Delhi has committed duty cut on 90% tariff lines, out of which 85% lines would be duty-free. 

 

With lower protectionism, in complementarity with land and labour reforms, India's share in global exports can rise over 3.5% within five years, Veeramani said. In fact, exports can emerge as the major engine of economic growth and it also should, he added.

 

India's growth story has been that of consumption but sooner or later growth must take the centre stage, Veeramani said, adding that consumption is not the most sustainable driver of growth. 

 

India's private final consumption accounts for over half of the GDP, while exports contribute less than a quarter to the GDP growth. Although exports' contribution saw some growth until FY23, it declined in the following year and remained stagnant in FY25. India's goods exports had contracted over 3% in FY24, and remained flat in FY25. 

 

 

"I say exports should be the major growth engine because your domestic demand is constrained by the spending by households, firms and governments," Veeramani said. "What we need to keep in mind is that the debt of all these--household debt, firms' debt and governments' debt--is growing." So domestic demand cannot be the major engine of growth in the long run, according to Veeramani. 

 

Driven by domestic consumption, India's GDP has grown at an average pace of 6.8% in the last decade. In FY24 and FY25, with limited support from exports, the country's GDP grew 9.2% and 6.5%, respectively.  End

 

Edited by Akul Nishant Akhoury

 

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