In News:

India had ‘limited success’ in capturing ‘China Plus One’ opportunity.

Limited Success in ‘China Plus One’ Strategy:

• India has had limited success in attracting multinational companies looking to diversify their supply chains under the ‘China Plus One’ strategy, aimed at reducing dependence on China.
• Vietnam, Thailand, Cambodia, and Malaysia have been more successful in benefiting from this shift due to factors like lower labor costs, simplified tax laws, and proactive Free Trade Agreements (FTAs).

Geopolitical Context - US-China Trade Conflict:

• The fresh US-China trade conflict involves tit-for-tat restrictions, with the US imposing export controls on Chinese high-tech goods and China retaliating by banning key materials.
• India's Position: As a "connecting economy" not directly aligned with the US or China, India stands to benefit from trade diversions arising from this conflict.

Opportunities for India Amid Trade Diversion:

• NITI Aayog CEO BVR Subrahmanyam highlighted opportunities arising from trade diversion, particularly due to US trade policies under President-elect Donald Trump, which could potentially create an economic boom for India.
• India has opportunities to capture a larger share of the global trade, especially in sectors where it currently holds a small market share (less than 1% of world trade in many areas).

Trade Policy Challenges:

• Steel Import Duty Proposal: NITI Aayog Vice Chairperson cautioned against imposing high duties on steel imports, arguing that it could reduce India’s competitiveness and lead to negative consequences for domestic industries reliant on steel.
• The global steel market has been affected by oversupply from China, with India’s iron and steel exports experiencing a sharp decline in Q1 FY25 due to weak domestic demand.

Impact of US Tariffs:

• A general 10% tariff on all imports by the US would not have a major negative impact on India.
• However, a 60% tariff on China could open significant opportunities for India, especially in sectors where it competes directly with China. There might be short-term shocks but long-term benefits.

Ongoing Trade Fragmentation:

• The report noted that trade fragmentation is driven by strict export controls on Chinese goods, implemented by the US to curb China’s growth, particularly in high-tech sectors.

Sectoral Competitiveness:

• While China remains India's key competitor across most export sectors, countries like Brazil, Indonesia, and South Africa generally lag behind India.
• Malaysia and Thailand outperform India in select sectors such as electrical machinery.

Challenges in the EU Market - Carbon Border Adjustment Mechanism (CBAM):

• Iron and steel industry facehigh exposure under the CBAM for EU exports, with tariffs potentially rising by 20-35% due to carbon emissions-related regulations.
• Indian firms could experience higher compliance costs due to the requirement for detailed emissions reporting, impacting competitiveness in the European market.