Exim Matters: Trade deals help but competitiveness delivers export growth

As India courts global trade deals like the EU pact, the Economic Survey flags competitiveness-not protection-as the real key to sustainable export growth

I write this a day before the presentation of the Union Budget for the year 2026-27. So, I will focus on last week’s two main developments: the India-European Union trade deal that suggests India’s preference for greater integration with the global economy, and release of the Economic Survey that recommends prioritising competitiveness over protection to domestic producers.

 

The India-EU trade deal seeks to give greater market access in goods and services to both the parties, mainly by reducing the tariffs and allowing easier mobility of natural persons for providing services. The precise text of the agreement has not yet been finalised. The government has released only a press note and a fact sheet highlighting the salient features of the agreement along with a disclaimer that it is published for information purposes only, does not create any legal obligations and may undergo further modifications. Once the text is finalised, the same will have to be approved by the lawmakers in the 27 member countries of the EU. That might take a year or so. The immediate significance of the agreement is the message that India and the EU will explore wider options to improve market access for their goods and services. 

 

In a fast-changing world, the impact of this trade deal is difficult to estimate, but in India, the hopes abound because key Indian export sectors like textiles and apparel, chemicals, leather, gems and jewellery stand to gain from duty-free access and expanded market reach in Europe. However, such trade agreements can be enablers, not silver bullets. Without global competitiveness, trade agreements alone won’t deliver export miracles, as our experience shows. 

 

In a chapter titled ‘External Sector: Playing the Long Game’, the Economic Survey says that the current environment highlights the importance of achieving strong export growth, making an export-oriented policy a pressing necessity. It calls for a unified effort to reduce manufacturing costs, thereby enhancing the country's export competitiveness. This includes correcting inverted duties, improving logistics infrastructure, lowering logistics costs, and reducing regulatory expenses. It warns that frequent policy changes can significantly disrupt export supply chains, create market uncertainty and cause foreign buyers to switch to other sources and that export markets once lost are not easily recovered. India must explore all opportunities to increase its export earnings to pay for the import needs of a growing economy. Many high-complexity products are within India's current ability limits and therefore, targeted industrial policies, technological improvements, and export-driven ecosystem development could yield significant benefits, says the Economic Survey.

 

Referring to the experience of several East Asian economies, the Survey says that high protection in upstream sectors risks raising costs for a much larger set of firms engaged in export-oriented production. In complex industrial ecosystems, decisions about what not to protect can be as important as decisions about what to support. India’s binding growth constraint today lies not in macroeconomic instability, but in micro-level regulatory friction, says the Survey.

 

The message from the Survey is unambiguous. In a fragmented world, trade agreements may help get better market access, but it is the ability to exploit the opportunities by improving competitiveness that will give better export growth. The government should now review all the tariff and non-tariff barriers that raise input costs. We need reforms that help Indian producers compete, not greater protection or subsidies.

 

Email: tncrajagopalan@gmail.com