India is the world's fifth-largest economy, and one of the fastest-growing in the world. The size of the Indian market, and its increasingly critical role in global supply chains, mean India and its trading partners have much to gain.
Simon Cooper, CEO for corporate, commercial and institutional banking at Standard Chartered SUPPLIED
As one of the world's largest economies by gross domestic product (GDP) and with a sizeable youth demographic and a growing middle class, India is an attractive market for exporters. Its next challenge is to take its place as one of the globe's most important trading nations.
However, there are some significant barriers to trade. Although import tariffs on goods were lowered substantially in the 1990s and 2000s, they have been raised again since 2017, and are now comparatively high.
The Delhi government also has relatively stringent restrictions on services trade. Against this backdrop, India has many opportunities to benefit from increased participation in the world economy and from greater participation in regional and global supply chains.
However, the government of Prime Minister Narendra Modi has adopted a more protectionist stance in recent years, finding it a politically popular thing to do. Significantly, it has walked away from the Regional Comprehensive Economic Partnership (RCEP), a major trade pact expected to be signed by year-end, because it fears an influx of cheap Chinese goods into the country.
According to the Standard Chartered Trade Opportunity Report, which details the size of the export opportunities between India and 10 trading partners, Southeast Asia overall has a combined US$10.7-billion opportunity to optimise exports, with goods making up $8.8 billion of the total. In Indonesia, Malaysia, Singapore, Thailand and Vietnam, goods exports have more room for expansion than services.
Indonesia and Malaysia could increase high-potential exports to India by around half, the most substantial increases of any markets in the UK-based bank's study in relative terms.
Electrical machinery is the largest combined opportunity identified across Asean markets, with the three biggest opportunities being for Malaysia ($986 million), Indonesia ($903 million) and Singapore ($669 million). There is room for significant growth in the textile industry, with a combined potential opportunity of $380 million in cotton exports.
India last year overtook the United Kingdom and France to become the world's fifth-largest economy. It has a growing middle class that is driving a rapid rise in consumption, according to Simon Cooper, CEO for corporate, commercial and institutional banking at Standard Chartered.
Thai businesses have potential to increase exports to India by $1.2 billion or 14%, says Plakorn Wanglee, CEO of Standard Chartered Bank (Thai). SUPPLIED
"As a result, India is one of the most important locations in the world for multinational corporations -- both as a market, and as an increasingly significant link in their global supply chains. As many corporations look to diversify those supply chains in the wake of Covid-19, India could be a key beneficiary," he said.
Plakorn Wanglee, CEO of Standard Chartered Bank (Thai), said Thai businesses could increase exports to India by around $1.2 billion annually, representing a gain of 14%.
The study also found that Indian exporters could boost trade with Thailand by an estimated $2.6 billion, up almost 50%, bringing the bilateral trade opportunity to $3.8 billion.
Thailand's iron and steel sector has the most to gain from trade with India, offering a $191-million opportunity, the bank's research shows. It forms a major part of the overall $966-million goods export opportunity. The other Thai sectors with significant opportunities in India are man-made staple fibres; optical, photographic and medical apparatus; man-made filaments/textile materials; transport and storage services.
"There's great potential for increased collaboration between Thailand and India, and this study highlights interesting opportunities for Thai companies seeking growth in India," said Mr Plakorn.
"With the Thai government's plans to embrace an innovation-driven economy, the country is in a strong position to use technology and automation to strengthen its manufacturing industry and increase exports to key markets, including India."
India also has much to gain from fulfilling its export potential, said the report. Although it is the fifth-largest economy, and home to the world's second-largest population, it is only the seventeenth-largest export economy.
The country is a net importer of goods and services, and although its share of global exports has increased over the past two decades -- from just 0.6% in 1991 to 1.7% in 2018 -- this is low compared to its share of global GDP.
"India is also a world leader in the export of high-potential goods such as jewellery and generic pharmaceutical products, but it is the nation's services industries where it particularly excels: services account for around 55% of GDP, with particularly strong growth in recent years," the report noted.
South Korea, as one of the world's largest vehicle manufacturers, has a $288-million opportunity to increase automotive exports to India. This is mirrored by India's opportunity to increase vehicle exports to South Korea, worth an estimated $391 million annually.
"India and South Korea enjoy a close commercial connection and are bound by shared economic interests. South Korea's open market policies have aligned with India's Look East and Act East strategies, which aim to strengthen India's relationship with its Asian neighbours," it said.
Business summits and agreements on trade and commerce have enhanced relations between the two countries, and in 2018, Korean foreign direct investment (FDI) to India crossed the $1-billion mark for the first time.
"Our model estimates that South Korea could increase high-potential exports to India by almost $1.5 billion annually, or 8%," the report said. "Most of this opportunity is found in goods exports (approximately $1.2 billion)."
It identified the top five sector export opportunities and vehicles, vehicle parts and accessories; knitted fabrics; financial services; man-made filaments; and pharmaceutical products.
The report also noted that India has a distinct labour cost advantage relative to South Korea, which is especially important in the production of cars. India is also experiencing an increase in FDI into the vehicle sector, as its government seeks to establish the country as a global manufacturing hub.
As India lost preferential access to the US market in 2019, it is likely to increase exports to other markets, which could include South Korea.
The report identifies opportunities at a sectoral level between India and 10 of its most dynamic and economically diverse trading partners: France, Germany, Indonesia, Malaysia, Singapore, South Korea, Thailand, the UK, the US and Vietnam.
It contrasts actual export values with potential export values -- calculated by an economic model -- to uncover medium-term opportunities. Overall, it says, the opportunities total $38 billion annually, including exports valued at $21 billion.
The US, India's biggest trading partner and the market with the largest opportunity to increase exports -- could increase its financial and insurance exports to India by $3.5 billion annually. Washington could also lift its exports of office administration and other business support services ($870 million) and IT services ($452 million) to India.
The US has much to gain from seeking amicable solutions and strengthening ties, especially as India is likely to be one of the main beneficiaries of supply chain diversification as organisations seek to spread their risk in the wake of Covid-19 disruption, the report said.
Meanwhile, Germany is India's largest trading partner in Europe, and the seventh-largest foreign direct investor. There are more than 1,700 German companies active in India and more than 600 Indo-German joint ventures in operation.
For European markets -- the UK, France and Germany -- the greatest opportunities lie in goods exports. Combined, these markets could increase goods exports to India by almost $2 billion, while combined services exports could be increased by $1.2 billion.