Is India ready for Digital trade war?

Introduction:

It is a broad concept, which includes not only the sale of consumers products on the internet and the supply on online services, but also data flows that enable global value chains, services that enable smart manufacturing and myriad other platforms and applications.

Digital Trade:

Digital trade refers to the trade of goods and services using the internet including the transmission of information and data across borders.

It also involves digitally enabled but physically delivered trade in goals and services.

Example: Purchasing medicines through an online marketing, or booking a stay in a hotel. Impact of digitalisation on trade.

The new technologies and business models are changing how services are produced and supplied, blurring already grey distinctions between goods and services and modes of delivery and introducing new combinations of goods and services.

Digitalisation causes improve in scale, scope and as well as speed of trade. Smaller firms have to deal with so much of difficulties in accordance with the sale, purchase margin and benefit. Digitalisation enables firms to use new and innovative digital tools to overcome barriers to growth, helping facilitate payments, enabling collaboration, avoiding investments in fixed assets through the use of cloud-based services, and using alternative funding mechanisms such as crowd funding. The sale of goods is not only internally within the country but also across the borders.

Rapid technological developments also facilitate the rise of services in international cross-border trade. Information and communication technology services have formed the backbone of digital trade, providing the necessary network infrastructure and underpinning the digitisation of other type of services.

Why trade war matters to India:

India is not the epicentre of the trade war but nonetheless we do see some impact. It’s less vulnerable but not immune to what’s happening globally.

For instance, if you are to look at US and China share is relatively small as compared to its East Asian Partners. But on the other hand, though India makes about 2 per cent of globally trade still it tracks the global trends quite closely.

Besides China and its other trading partners US has also undertaken Substantive action against India.

•US withdrew India from the GSP mechanism (measured impact) and raised tariffs on steel/aluminium, amongst others.

•India retaliated with counter-tariffs on 16 products (e.g. apples and almonds); US-India in WTO dispute and been negotiating India on the outcome.

•Seeking to reduce India’s sizeable services surplus and tighten labour mobility, particularly on software and off sharing business.

•Besides the impact the trade war is having on the goods, we also see pass-through to the financial markets particularly on the moments of the CNY and it is beginning to matter a lot not only to the regional currencies but also India. To establish the linkage between the INR and the CNY, it has been studied as per to 2015, 2016 the influence of the CNY on INR was relatively small or negligible. But as the years have gone by in the past 3 to 4 years that linkage has grown more strongly.

Trade diversion opportunities:

•Trade diversion from China for goods count for the US.

•FPI and FDI diversion.

•Refocus on export potential by investing in infrastructure, human capital and tax incentives, both for manufactured goods and agricultural products.

•India’s possible inclusion into the Regional Comprehensive Economic Partnership (and by extension, the regional supply chain).

•Geostrategic opportunity in deepen relationship with the US (on immigration, education, and security, in particular).

To substantially benefit from this situation of digital trade war, India requires a strategic approach to convert this opportunity into a major gain.

India needs to focus on becoming a new powerhouse as a global hub for exports, with a major positive impact on competitiveness and job creation.

China’s merchandise exports are almost the same as India’s GDP. EVEN a 10% shift from Chinese export to Indian export would imply over 75% increase in India exports.

For this, India needs to develop strategy and vision for itself and the world to make this reality. Its recent tepid export performance suggests that investment from large global companies is the transformative path for India, provided certain key points kept in mind.

Facts to be considered before the digital trademark:

Negative impact of trade war:

1. India is only one among the alternative countries being considered by major international companies as an investment destination.

E.g. Indonesia, Malaysia, Mexico, Thailand, Vietnam all has relatively easier access to large markets.

• India as the largest domestic market, but the focus of most large firms with major international brands and global presence is on exports and maintaining their global value chains.

• India aspirations to double its export and create job depend on its success to link up effectively with GVCS. As the seventh largest global economy and twentieth largest good exporter, India is not yet a significant presence in GVCS.

• To establish domestic capacity for export hubs and GVCS, strong presence ‘lead firms’ that manage the GVCS become essential.

• To compete with other nation to attract major investment away from china, India needs to emphasise and improve implementations of support policies, with a new flagship programme. It is noteworthy that even china, in these difficult times, is increasing its incentives and project support to attract additional investment.

Even with a trade war, U.S investment in china during January 2019 reportedly doubled, foreign capital china’s hi-tech industry increasing by 41%.

Positive impact of the trade war:

1. The trade war will make India self-dependent.

• At first, the export of many items from India was not possible, but now after tariff hike, India has the edge.

• Though India has been competitive in many products, but there has been lack of production unit. This is an opportunity to expand the production to meet the global requirement, it bee helpful in boosting up India’s infrastructure.

• India has 6-35% concession on duty under Asia Pacific Agreement making Indian exports more desirable.

Conclusion:

Considering the positive and negative impact of the digital trade war, it is not a totally win-win situation for India. But it alternatively gives an opportunity to seize the growing market.