GVC integration, supply chain resilience, FTAs key to boost exports, high-end manufacturing: Deloitte India

The report emphasizes the need for India to transition from low-value assembly to high-value manufacturing and integration into Global Value Chains (GVCs). This requires reducing logistics costs through multimodal export corridors, addressing port handling and last-mile connectivity. Addressing inverted duty structures (where taxes on raw materials are higher than on finished goods) is crucial, as it makes domestic manufacturing uncompetitive. The report also highlights the vulnerability of supply chains and suggests strategies like diversifying suppliers and building strategic reserves to mitigate geopolitical risks. This aligns with the government's push for initiatives like the Production Linked Incentive (PLI) Scheme to boost domestic manufacturing in high-potential sectors like electronics and semiconductors.

The effective utilization of Free Trade Agreements (FTAs) is critical for India's export-led growth. FTAs provide access to competitively priced intermediate inputs, technology, and large export markets. However, the report highlights the need to align these agreements with domestic industrial strategy to attract investment and build manufacturing ecosystems. The recommendation to set up a 'Response Cell' is significant to monitor emerging trade barriers like the European Union's Carbon Border Adjustment Mechanism (CBAM), a tax on carbon-intensive imports. Navigating such non-tariff barriers, product regulations, and sustainability requirements will be essential for Indian exporters to maintain competitiveness in global markets.

A significant focus is on supporting Micro, Small and Medium Enterprises (MSMEs), which account for nearly half of India's exports and manufacturing. The government needs to simplify compliance with rules of origin (criteria to determine the national source of a product) and documentation under FTAs to help MSMEs benefit from preferential tariffs. Furthermore, the report identifies access to affordable trade finance as a major hurdle. The Reserve Bank of India (RBI) and government initiatives like TReDS (Trade Receivables Discounting System) must ensure easier access to pre- and post-shipment credit to address the challenges of limited collateral, long payment cycles, and currency risks faced by MSMEs.