India’s weak growth, combined with weak domestic private investment, has weakened its overall domestic production and productivity frontier over the past decade and a half. Foreign direct investment in some sectors could have remained net positive, but relying solely on foreign capital for sustained investment output would still have its limits.
While the need for more goods and services has continued to grow, a weak domestic economy presents fewer opportunities for India to grow both domestically and as an external economy. Extensive import dependence on other nations means fewer opportunities to actualize India’s vision of “strategic autonomy” in its foreign policy and/or to negotiate better bilateral, plurilateral or multilaterals.
In India’s current macroeconomic scenario, beyond the reasons cited for its high import dependence, a low level of trade competitiveness is due to two interrelated factors:
weak demonstrable domestic manufacturing strength (for which programs such as PLI and Make in India are vital)
a non-competitive currency pricing mechanism for the rupee (i.e. other emerging market currencies).
In fact, since the reforms of the early 1990s, India has faced structural challenges in prioritizing these two aspects. On the other hand, countries like Bangladesh, Vietnam, Indonesia and Thailand, to name a few, have done much better to align an export-oriented industrial vision with a set of policies that make their products (including their cost) more competitive at a global level.
Even if several countries within the RCEP expressed the wish to have India present within the framework of the partnership. Yet India’s relative weakness in terms of trade and levels of competitiveness raised fears about how Chinese commodities could ‘flood’ Indian markets (a concern that was not misplaced).