Following the inflations in duties imposed by both US and China on imports from each other, India can focus on proliferating its exports of a number of goods to markets of both the countries as Confederation of Indian Industry (CII) opines. With the US imposing additional duty of 25 per cent on imports worth $34 billion from China, certain Indian products may become more competitive.
As per CII’s analysis, the potential pool of goods that India should pivot on for the US market include items in the categories of machinery, electrical equipment, vehicles and transport parts, chemicals, plastics and rubber products. Countries such as Vietnam, Indonesia, Thailand and Malaysia have increased their exports of these products to the US in recent years, noted CII.
Sitaram Sharma, President of Bharat Chamber of Commerce says, “the fallout of US-China trade war will have a direct impact on India including the MSME Sector. But will be storied and potentially deep. It will affect both trade and economy.”
He says that since both the US and China are India’s top export destinations for engineering goods, the skirmish between the two may pose a challenge in the Indian export sector. And as large numbers of MSMEs are engaged in engineering goods they might be caught in the crossfire.
Based on India’s current exports to the US in these categories, products such as intermediate parts for the defense and aerospace sector, vehicles and auto parts, engineering goods, etc have a higher potential for export, noted CII. Top exports from India to the US which are covered in the list of items for which tariffs have been hiked include pumps, parts of military aircraft, parts for electro diagnostic apparatus, passenger vehicles of 1500-3000 cc, valve bodies and parts of taps. Exports of these items stood at over $50 million in 2017, according to CII, and can be increased with concerted efforts. Also, sectors like apparel and textiles, footwear, toys and games and cell phone manufacturing are becoming competitive industries in India and need to be encouraged.
CII examined 818 product lines where the US has raised tariffs for imports from China. Between 2012 and 2017, China’s exports to the US have moved up the value chain with accelerated growth in high-technology items such as telecommunications equipment, automotive, cell phones, etc.
The body has suggested that the trade dialogue with the US should be strategized taking into account India’s competitive advantage in these products. Foreign direct investments from the US should be encouraged by boosting confidence of US companies in India’s business climate. This might necessitate addressing their concerns regarding non-tariff barriers in India for better outcomes in the long term.
In the domestic industry, CII stated that it is important for India to enhance productivity while adding technology to its domestic production in the identified products.
It recommended that the Merchandise Exports from India Scheme (MEIS) under the Foreign Trade Policy 2015-2020 includes major product groups of interest to the US and should be used to build exports in the identified categories. Also, trade facilitation must be a high priority to lower transaction costs and enhance competitiveness. It advocated that the Indian companies require better access to export credit to intensify the export effort. Eying a great potential for small players, CII also opined that MSMEs should be supported in exporting intermediate and high-technology products.
However, “with prices of base metal likely to go down MSMEs engaged in this sector may witness their revenues shrink. For Chin will try to muscle into the market as its own exports to the USA will be restricted,” Sharma explains.