India’s global trade competitiveness
Trump’s Tariff Policy and Its Global Ripple Effects
The global economy is facing significant difficulties as a result of Donald Trump’s ambiguous tariff policy. These actions build on the protectionist stance he adopted during his first term and notably target China. India is facing both possibilities and challenges at this critical juncture in the world’s transformation. Some of the concerns include the possibility that Chinese exporters may undercut Indian exporters through aggressive pricing and dumping, challenge Indian suppliers domestically, and transfer excess supply to markets.
Even though India did not benefit much from the initial round of US-China trade disputes that began in 2018, may it better position itself to take advantage of the current shifts in global trading patterns? India must address structural inefficiencies and reform its policy and regulatory frameworks in order to achieve this, according to a recently released Competitiveness Index that ranks it as the least competitive among its major Asian peers and casts doubt on its ability to take advantage of the shifting dynamics of global trade. Leading the index rankings and demonstrating strong competitive bases are Thailand, Vietnam, and Malaysia.
India’s Strength in Labor Undermined by Low Productivity
The index gives a forward-looking perspective of export potential and reveals more significant challenges in extending its international trade strategy, and India does poorly on most of the six core pillars of competitiveness. One relative strength is labor availability; India’s workforce is growing at the fastest rate among the five countries. But this is offset by the lowest worker productivity. Innovation and research, and development (R&D) are particularly deficient. Rarely do Indian businesses introduce new products or invest heavily in R&D. In contrast, Malaysia and Thailand are leaders in these fields, boosting their productivity and global competitiveness.
Access to Financing and Land Remains a Major Bottleneck
Access to financing is another problem because a large number of Indian enterprises either have their credit refused or are denied credit altogether. The persistent issue of land supply is made worse by intricate regulations and construction standards that limit usable land and raise costs. India scores highly on the demand circumstances pillar, largely because of its vast domestic market. However, this large market has two sides. While allowing enterprises to expand, it reduces the incentive to export. Indian enterprises report the lowest international demand among their rivals, which stands in stark contrast to Vietnam’s and Malaysia’s export-oriented policies.
Company structure and regulatory barriers further reduce India’s competitiveness. According to the survey, India has one of the highest levels of firm concentration among the selected countries. In many cases, a small number of corporations hold oligopolistic or monopolistic control over critical items. When they are raw resources, rising input costs eventually reduce the competitiveness of downstream sectors.
Poor Regulatory Quality Undermines Small and Medium Enterprises
India has a low rating on the regulatory quality pillar due to issues ranging from complicated taxes and corruption to inefficient licensing processes and judicial delays. Small and medium-sized firms are disproportionately affected by these issues. Perhaps the most problematic stance on trade policy is that of India. High import taxes and exclusion from significant trade blocs like the Regional Comprehensive Economic Partnership and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership limit access to global value chains. In contrast, Vietnam benefits from low-cost inputs and preferential market access as a signatory to all major trade agreements.
The Competitiveness Index’s identification of these deficiencies is echoed by industry speakers. Indian companies acknowledge that they invest little in R&D and are unduly reliant on domestic demand. For instance, the apparel industry still focuses on cotton-based clothes even though the demand for synthetic clothing is rising globally. This internal concentration inhibits innovation, limits economies of scale, and hinders quality improvements. Strict labor laws that restrict firm expansion and encourage businesses to remain small further worsen the persistent issue of a “missing middle” in India’s industrial environment.
Structural Barriers Holding Back India’s Trade Growth
India faces more significant structural issues than just short-term ones, as seen by its poor rating on the Competitiveness Index. In order to progress and capitalize on the current geopolitical window, India needs to take a more active approach to trade. It is necessary to have a well-planned competitiveness strategy that actively integrates India into global trade networks, boosts productivity, reduces red tape, and encourages innovation.
The article “In the race for exports, India’s competitive edge missing” that appeared in The Financial Express on May 29, 2025, was used as the basis for this editorial. The essay highlights India’s newfound trade opportunities in the context of US-China tensions, but it also points out that its benefits are hampered by significant structural problems and low competitiveness. India must successfully integrate into global value networks and embrace radical reforms if it hopes to prosper.