The trade war between the US and China has dramatically upended global supply chains, throwing open an opportunity for India to play host to a range of export-oriented manufacturing units moving out of China, and export its way out of a trade rut. The Indian government is reportedly working out a set of tax incentives to push this agenda along. While inward investment is expected from foreign firms, Indian businesses must also act quickly to strike joint venture and supply deals to make the most of this chance. The industries that stand to gain include electronics, consumer appliances, electric vehicles, footwear and toys.
True, the bruising tariff spat between the world’s two largest economies has hurt global growth. Ripple effects are being felt in India, too. However, the country could turn itself from a victim into a beneficiary of the problem by filling in a supply vacuum. It is not just intermediary products that have suffered disruption. According to a Commerce Ministry study, India can replace US exports of as many as 151 products to China. Similarly, India can export more than 200 Chinese items that sell in the US.
If India has to grow its economy to $5 trillion by 2024, its manufacturing base needs to expand sharply. Export orientation is the path taken by almost all Asian economies that emerged from poverty in the latter half of the last century. If quality standards are met, India could use its low-cost labour advantage for the same purpose. Labour restrictions may need to be eased, though, and the rupee not allowed to get too high. Since India is not a currency manipulator, sound macroeconomic management would be needed for this.