India may benefit from trade protectionism: S&P Global India Research

Report highlights India's growth potential through manufacturing reshoring and energy security amid global trade uncertainty and protectionist policies

Changes in global trade policy would catalyse supply chain diversification to the benefit of India, which is on track to become the world’s third-largest economy by financial year 2030-31 (FY31), S&P Global India Research Chapter’s report said on Monday.

 

While projecting India’s real GDP growth to average 5.7 per cent over the next decade, S&P’s report said that further manufacturing reshoring and trade regionalisation strategies could add about 1.3 percentage points to India’s real GDP by end of FY35. 

 

“Companies are expected to relocate their operations to regions that offer competitive advantages, with India emerging as a key destination,” the report said. 

 

The report stated that in the near term the broader spillovers of heightened global trade and financial uncertainty may be more damaging to India’s growth affecting private sector investments.

 

“India has made notable progress in enhancing its competitiveness and making its manufacturing sector more attractive to investors… Beyond the near-term impact, therefore, India can benefit from the increasing trade protectionism, which may catalyze supply-chain diversification," the report added. 

 

The threat of higher US tariffs on several Asian economies, including mainland China, Vietnam, Taiwan, Thailand, and Bangladesh, could be leveraged to India’s advantage to accelerate its manufacturing growth and increase its share in global exports, the S&P report said. 

 

The report highlighted that the availability of labour with the required skills for value-added manufacturing remains a significant challenge that hinders India’s competitiveness. India has scored higher in the area of finance with improved financial position of lenders over the past seven years, the report added. 

 

“Although the uncertainty stemming from US trade policies will likely reduce the appetite for loans, growth in the manufacturing sector is expected to be supported by high finance resource availability following the inclusion of Indian government bonds in global indices in 2024,” the report said. 

 

The S&P Global India Research report also highlighted that energy will be a key thread that will enable the performance and viability of all sectors in India. 

 

“India is set to pursue a path where energy security meets revenue security. Recent regulatory changes present an opportunity as India looks to enhance crude oil exploration and development to achieve self-sufficiency,” the report said.