Fast-Evolving Global Trade Order Necessitates Proactive Strategies To Mitigate Challenges

While India is on a negotiation spree to carry out bilateral trade agreements with countries of its interest with a view to face the headwinds and tailwinds in an effective manner, experts firmly believe that in the fast-evolving global trade order, the objective behind the whole purpose cannot be achieved unless the country does not put up an efficient and more resilient supply chain. Apart from negotiating well with its partner countries, they strongly feel that it is high time that the government and other stakeholders work in a much more cohesive manner to create a robust domestic manufacturing base which should also possess the desired scale and agility to meet the demand in a competitive way.

There is also a school of thought that amid the ongoing tariff war following US President Donald Trump’s reciprocal tariffs and fast-changing trade order, there is need to revisit the existing trade policy framework to make it more robust to face the challenges in a more dynamic manner. These developments call for pre-emptive strategies to alleviate risks in both short and long terms and capitalise on emerging opportunities. Indian companies need to adapt by diversifying their export markets, renegotiating trade agreements and enhancing supply chain resilience to navigate these complexities.

However, this school is also of the opinion that while external factors need to be dealt more proactively now, it is the inherent gaps in our own supply chain that calls for urgent redressal. A case in point is a sector like textile and apparel (T&A) where the country has failed to put up a globally competitive manufacturing base, even as the government has recently signed FTA with the UK and pursing a similar kind of bilateral trade arrangement with the EU (expected to be finalised in the next few months) and other countries, including the US.

Experts are of the view that the T&A infrastructure continues to lack scale and hence competitiveness in the backdrop of multiple issues related to discrepancies in duties and higher logistics cost. Schemes like textile parks and more recently PLI have not yet taken off. Many of the schemes like TUF and Cotton Technology Mission either could not fetch the desired results or failed to continue further.  On top of all this, the most pertinent issue that is bogging the industry down is the availability of raw materials at competitive prices. Here, the Quality Control Order has only added to the woes by further choking the supply of raw materials from global sources.

S K Sundararaman, Chairman, SIMA

“While external factors are currently weighing heavily on us in this fast changing world order, it is our internal factors that need to be addressed on a war footing. Even if we get these bilateral trade agreements done in a favourable manner, they cannot fetch the desired results till we upgrade our manufacturing base. The India T&A is languishing with lack of scale and efficiency. There is need to incentivise the efforts to create favourable investment climate. Moreover, a focussed approach is called for to eliminate the fiscal and non-fiscal issues that are taking toll on our overall progression,” says S K Sundararaman, Chairman, SIMA.

The Indian industry is also faced with an inherent anomaly. In fact, more than 70 per cent of the global T&A trade is MMF-based, while in India, we continue to have cotton-dominated production base. This mismatch has been proving quite costly since the industry has not been able to serve the global market with right kind of products and hence it is abysmally lagging behind in increasing its share in the global market.  More so, the Indian T&A industry continues to serve the market with basic products without moving up in the value chain.  Here not only it has to encounter a greater degree of competition but also the realisation per unit is very low.

Rajani Sinha, Chief Economist, CareEdge Ratings

“The government machinery has geared up to surmount these recent trade related headwinds arising out of ongoing trade war. It is a testing time for our policy making machinery as to how it carries out these trade negotiations. We have to be very careful in putting forward our interests in this fast-evolving scenario. All said and done, it is our internal reforms that are going to play a crucial role in effectively facing/realising these challenges and opportunities. Our policies and regulations have to be well carved out and focused to create a supply chain that is more robust in nature. We simply cannot continue any longer with commodity products. Moving up in the value chain will be paramount. Simultaneously, we have to put up a strong macro-economic environment to fructify these specific efforts,” states Rajani Sinha, Chief Economist, CareEdge Ratings.

Rakesh Mohan Joshi, Vice Chancellor, Indian Institute of Foreign Trade

Rakesh Mohan Joshi, Vice Chancellor, Indian Institute of Foreign Trade, believes that global trade dynamics have undergone a major transition in the present scenario and policy makers will have to be quite proactive in dealing with the fast-evolving global trade order. There is need to keep constant vigil on the emerging events which have the potential to derail our initiatives if not acted on time. Rather than reacting in an impulsive manner, we should have research-based policy framework in order to derive optimal advantage.

“We need to increase the competitiveness of our products in the international market by focusing on value-added products and branded commodities. This involves moving up the value chain and reducing reliance on exporting basic commodity products. To boost exports, we have India to focus on value-added products and identifying proper markets,” adds Joshi.

Prabir Bandyopadhyay, Vice President, Śyama Denims

Prabir Bandyopadhyay, Vice President of Ahmedabad-based Śyama Denims, is of the view that even if the present tariff war presents difficult scenario for the Indian T&A makers, India is well poised to navigate this choppy water. “What provides India a distinct advantage is its massive domestic market and favourable demographics. Despite adversity on the external front, we as a country will continue to keep ourselves afloat with the cushion of domestic demand,” adds Bandyopadhyay.

“India should urgently reassess its trade policies to navigate the current challenges in global commerce. The recent restrictions on importing ready-made garments from Bangladesh via land routes have disrupted supply chains, leading to increased logistics costs and delays for Indian buyers. This move, while aiming to bolster domestic manufacturing, has also resulted in stranded shipments at the border. Furthermore, the political and economic instability in Bangladesh has caused significant payment delays to Indian exporters, with some letters of credit remaining unsettled beyond their maturity dates. While these developments present short-term opportunities for India’s textile sector, a comprehensive review of trade policies is essential to ensure long-term resilience and competitiveness,” says Vishal Pacheriwal, Director of Parnika India – a Surat-based company operating in the manufacturing and global export of exquisite women’s ethnic wear. The company has recently announced its expansion plans to southern and eastern parts of India, along its existing base in Maharashtra and Gujarat.

Indian Firms Recalibrate Trade Strategies Amid Global Uncertainties: HSBC Global Trade Pulse Survey
Indian firms are rethinking their trade strategies to adapt to evolving market dynamics, with 87% of the firms pivoting their focus toward domestic clients, prioritizing local customer needs to ensure stability.

This is according to the HSBC Global Trade Pulse Survey, which examines the business strategies and sentiments of 5,750 international companies in 13 global markets, including 250 firms from India, in relation to tariffs and trade. The survey reveals that 76% of Indian firms are reassessing their long-term business strategies in response to changes in trade policies, while 80% report exercising greater caution in expansion and investment decisions due to trade-related uncertainties.

Runa Baksi, Head of Global Trade Solutions, HSBC India, says, “Indian businesses are demonstrating remarkable resilience and adaptability in the face of global trade uncertainties. The findings of HSBC Global Trade Pulse Survey highlight a pivotal shift, with Indian firms recalibrating their focus toward domestic markets and actively exploring new regions to mitigate risks and seize emerging opportunities. This dual approach underscores the agility of Indian enterprises in navigating complex trade dynamics while maintaining an optimistic outlook on growth.”

In the light of the current trade dynamics, businesses are adopting various strategies to navigate uncertainties. A significant 91% of Indian firms are focusing on entering new markets, particularly in regions less affected by trade disruptions, while 87% are shifting their attention to domestic markets, prioritizing local customers and minimizing international exposure. Additionally, 82% are choosing to exit high-risk markets impacted by trade uncertainty, and 87% are exploring mergers and acquisitions to bolster their market position or strengthen supply chains through strategic partnerships.

The survey also shows 83% of Indian firms (73% global average) anticipate a substantial rise in cost in the next six months due to trade uncertainties, with 51% of these firms being concerned by the escalating expenses driven by tariffs and other trade-related factors. To address these challenges, 42% of Indian companies have already adjusted their prices to account for higher costs, while 48% are planning similar measures. Additionally, 45% of Asian firms have increased their inventory levels to mitigate supply chain disruptions, with another 48% of Indian firms intending to follow suit.

Despite these challenges, Indian firms remain optimistic. An impressive 96% of Indian companies (compared to 89% global average) express confidence in their international growth prospects over the next two years. To achieve this, Indian firms are adapting their trade strategy to significantly increase their reliance on the USA, as well as South Asia and Middle East.

Furthermore, 80% of the Indian firms believe that trade uncertainties have encouraged their businesses to evolve and explore new opportunities. During this period of disruption, 56% of Indian firms seek support with crisis planning and business resilience, while 53% require tools to manage trade risks effectively.