Indias-Regional-Trade-Issues-and-Challenges Nimisha

India's Regional
Trade: Issues and

Challenges
India's strategic location in South Asia makes regional trade a crucial factor in
its economic growth and development. Despite its advantages, India's trade
within the region remains significantly lower than potential, constrained by
various economic, infrastructural, and policy-related challenges.
by Reena Dhengle
India's Trade Policies: A
Balancing Act
Opting Out of RCEP
India's decision to withdraw from the Regional Comprehensive Economic
Partnership (RCEP) has been a highly debated issue. The RCEP was
designed to promote trade liberalization by reducing tariffs, simplifying
rules of origin, and enhancing trade in goods, services, and investments
among its member countries.
Focus on ‘Atmanirbhar Bharat’

The ‘Atmanirbhar Bharat’ initiative, launched in response to the COVID-19
pandemic, emphasizes self-sufficiency by reducing dependence on
imports and encouraging domestic manufacturing.
Impact of Trade Policies on Regional
Integration
India's decision to withdraw from the RCEP and its focus on the ‘Atmanirbhar Bharat’ initiative have significant implications
for its trade openness, regional competitiveness, and economic integration within South Asia.
The combination of opting out of the RCEP and focusing on ‘Atmanirbhar Bharat’ has led to a decline in India's trade
openness. In a globalized economy, trade openness is crucial for enhancing economic growth, increasing market access,
and promoting competitiveness.
Tariff and Non-Tariff
Barriers in India's
Regional Trade
India's tariffs and non-tariff barriers (NTBs) significantly impact its regional
trade flows and overall competitiveness in South Asia. While tariffs have
decreased over the years, they remain higher than regional standards in many
sectors.
High tariffs act as a direct barrier to trade, reducing the volume of goods
exchanged between India and its regional partners. By imposing higher tariffs,
India discourages imports, which can limit its access to cheaper or better-
quality goods and reduce its overall trade efficiency.
Non-Tariff Barriers
(NTBs)
Beyond tariffs, India also imposes various non-tariff barriers that affect its
trade relations with neighboring countries. Complex regulatory requirements,
such as cumbersome customs procedures and non-standardized technical
regulations, create delays and increase transaction costs.
The cumulative impact of high tariffs and NTBs negatively affects India’s
market access and economic welfare. Indian businesses are less able to
benefit from the comparative advantages of regional trade partners, and
consumers face higher prices for imported goods.
Infrastructural and
Logistical Challenges in
India's Regional Trade
India's trade infrastructure, particularly its road, rail, and port connectivity,
plays a critical role in determining the efficiency of regional trade. Despite
significant improvements in recent years, the country’s infrastructure still
faces substantial challenges.
Logistical inefficiencies, such as high transportation costs and long transit

times, add to the overall cost of trade. India's logistical costs are higher
compared to regional peers, with transport costs often exceeding 13-14% of
GDP, significantly reducing its competitiveness in the global market.
Economic Impact of Protectionist
Policies in India
India’s protectionist policies, aimed at boosting domestic industries, particularly through initiatives like ‘Atmanirbhar Bharat’,
have profound economic implications.
Protectionist measures, such as high tariffs, import substitution, and subsidies for domestic industries, come with both
direct and indirect economic costs. High tariffs, for example, protect domestic industries from foreign competition but also
increase the cost of imported goods, which directly affects consumers by raising prices.
Impact on Competitive
Standing and Regional
Markets
Inward-looking policies, like those implemented under ‘Atmanirbhar Bharat’,
may weaken India’s competitive standing both within South Asia and on the
global stage.
Moreover, protectionism limits India’s ability to leverage comparative

advantages in regional markets. South Asia’s intra-regional trade remains one
of the lowest in the world, with India playing a pivotal role. However, countries
like Bangladesh, Sri Lanka, and Nepal have increasingly turned to other
markets, such as China, for trade due to India’s restrictive trade policies.
Policy Recommendations for
Enhancing Regional Trade in India
To unlock the full potential of regional trade and overcome existing barriers, India must adopt a multifaceted approach that
includes policy reforms, infrastructure improvements, and a re-evaluation of its stance on regional trade agreements.
India should work towards gradually reducing tariffs on key goods, especially in sectors where it has a comparative
advantage, like textiles, chemicals, and pharmaceuticals. Reducing tariffs can stimulate trade within South Asia, benefiting
both consumers and producers by lowering costs and improving the availability of goods.

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India's Regional

Trade: Issues and

Focus on ‘Atmanirbhar Bharat’

Logistical inefficiencies, such as high transportation costs and long transit

Moreover, protectionism limits India’s ability to leverage comparative

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