India has a “long way” to go before it matches China’s role in the Asia-Pacific region’s trade and investment flows and the country’s success will depend on its ability to speed up implementation of necessary structural reforms, a United Nations report said.
The Asia-Pacific Trade and Investment Report 2015 by the U.N. Economic and Social Commission for Asia and the Pacific said India faced various structural bottlenecks, including delays in project approval, ill-targeted subsidies, a low manufacturing base and low agricultural productivity, difficulty in land acquisition, weak transportation and power networks, strict labour regulations and skill mismatches.
“India still has a long way to go to match China’s role in the region’s trade and investment flows. India’s success will depend on its ability to accelerate the implementation of necessary structural reforms in order to improve its business and investment environment,” it said.
Good FDI inflows, but still…
The report added that in 2014, India attracted FDI inflows amounting to $34 billion, a 22 per cent increase.
While this development is encouraging, the amounts received are about a quarter of total FDI received in China in 2014, the report has said.
The Narendra Modi-led government has liberalised FDI in sectors such as defence, railways, construction development, medical devices and insurance since coming to power in 2014, it said adding that the government is pursuing simplification of the business environment by reducing excessive regulation and increasing predictability in the country’s trade and investment regimes.
‘Make in India’ can woo FDI
The ‘Make in India’ programme could attract some new FDI in the manufacturing sector, the report said.
FDI outflows from India picked up from very low level in 2013, bouncing back to $9.8 billion in 2014.
In South and South-West Asia, India accounted for more than 50 per cent of trade by that region.
The improved growth momentum of India amidst China’s economic slowdown leads to the expectation that India may offer a new hope for regional and global economy.
International Monetary Fund (IMF) expects that India will overtake China as the fastest growing economy in the world in 2015. It is expected that the growth momentum of India will be sustained by economic reforms, a consequent pickup in investment and lower oil prices.
Numbers could be positive
In addition, population growth adds to India’s growth potential.
The report cited IMF projections that India is expected to have the largest labour force in the world by 2030, with about one billion people of working age.
However, India is still not in a position to support global and regional trade and investment flows as China did, it said.
The size of Indian economy and GDP per capita, measured in real term, is around 30 per cent of China.
Domestically-driven economy
India’s economy is still domestically-driven and the share of the country's industrial sector is still relatively small. Therefore, India needs to significantly strengthen its manufacturing sector in order to become competitive as a global and regional export hub, it said.
Tourist arrivals are often highly concentrated in one destination in each of the respective subregions.
In South and South-West Asia, India attracted 43.6 per cent tourists travelling to the subregion.
In 2016, trade performances are expected to vary widely across countries, depending on the regional intensity of their trade.
Yet, it can do well
Countries such as India and Vietnam are expected to do relatively well because their exports are largely directed to advanced economies in Europe and North America that are expected to expand in 2016, while those countries with a heavy reliance on the Chinese market will likely continue their pattern of slow growth.
It has said that while the relatively strong performance of the Indian economy is encouraging, it is unlikely to compensate for sluggish performances elsewhere given India’s market remains only weakly and selectively integrated with the Asia-Pacific region overall.
From 2005 to 2014, China’s exports increased from 15 per cent to 17 per cent of the region’s total exports while India’s share grew from 9 per cent to 11 per cent. The report said that India was the top initiator of new trade remedies, introducing 34 during the reporting period.
Trade-restrictive measures
Indonesia and India were the two economies responsible for the largest number of new trade-restrictive measures, with 28 and 22 measures respectively. The majority of new trade-restrictive measures were tariff increases, although as in the previous period, the Asia-Pacific region accounted for a disproportionately high share of export restrictions (around two thirds of the global total)
In Asia and the Pacific, 108 new trade restrictive measures were recorded in the same period, compared with 80 liberalising measures.
Asia-Pacific economies accounted for 40 per cent of the trade-restrictive measures introduced globally, up from 38 per cent in the previous period, but only 27 per cent of liberalising measures.
