Trade drives the texture of relationship between nations and is a primary determinant of policy making. The grand game of global trade is played on the chessboard of geopolitics where policymakers make the rules and diplomacy is their skill. Entrepreneurs who understand this make winning moves. Iconic entrepreneurs like Rockefeller, Dhirubhai and Lee of Samsung are known to have had this native skill which helped them not just build empires but in turn even impact policy. But for those not blessed with native skills, observing soft diplomacy overtures, and analyzing trade data between nations can assist in indicating which way trade winds are blowing & where do opportunities lie.

Global trade is indicative of an engaged world bringing nations closer & diplomatic overtures are its visible manifestations. Head of State visits, cultural exchanges, awards, conferences, aid and even conflicts are all examples. Since more than a third of the USD 105 T (Trillion) global GDP gets traded beyond national boundaries in an increasingly collaborative world, soft diplomacy is on the rise and makes for keen observation.

India is a civilizational global trading economy. Our unique geographical position at the intersection of a vast northern hemispherical land mass and southern hemispherical oceans have serendipitously & strategically placed us on terrestrial & maritime trade routes since millennia. Healthy tropical weather & abundant biota has added to this geographical advantage. Not surprising then that from Marco Polo to Zheng He & many before them have traversed our land. And even before that our own from Kushans to Cholas commanded trading influence from Bukhara to Batavia and beyond.

India’s global trade FY 2022-23 was USD 1.6 T (Trillion). Goods & merchandise constituted USD 1.16 T & Services another USD 500 B (Billion). A deficit of 266 B in merchandise, largely contributed by petroleum (115 B) & precious gems (35 B) was compensated by a surplus of 145 B by our services trade keeping the overall deficit at 122 B. (For China watchers: its merchandise trade at 6 T far outstrips ours, but its services trade is only a tad higher at USD 800 B and that too with a deficit of 50 B)

Broad contours of trade policy are easy to predict then. Reduce dependence on fossils, develop alternatives, substitute imports, focus on manufacturing, increase exports & value adds, boost services exports, reduce services imports etc. The logic behind governments programmatic announcement like “Make in India”, “AtmaNirbhar”, “Ethanol Blended Program (EBP)”, “Atal Innovation Mission”, “Gati Shakti” & even casual suggestions like “Wed in India” then become clear. A deep dive into individual sectors & geographies offers further insight into how programmatic announcements translate to implementable schemes.

For instance, the electrical machinery & equipment segment. At USD 70 B it accounts for our third highest import bill after petroleum & gemstones. Policymakers have targeted the segment strategically & with intent and results can be seen. Cellphone imports that were 3.5 B in 2017-18 are down to a meagre 33 M (Million) in 22-23. We are now a cellphone manufacturing powerhouse. “Production Linked Incentive” (PLI) scheme is the governments flagship intervention under its AtmaNirbhar & Make in India programs. The scheme extends other import substitutable products like laptops, notebooks, consumer electronics etc. No surprises then that companies like Amber, Dixon etc. are rock stars on bourses and consumer electronic startup like BOAT is a darling of masses. Toys, chemicals, plastics, defense, jewelry, and many other categories will present similar opportunities in future.

We export over USD 105 B worth of engineering goods each year. Our largest commodity export, bigger than processed petroleum and jewelry reexport. In addition to steel & non-ferrous metals, Indian engineering products from process plants to boilers to automotive, railway & spacecraft parts are finding increasing acceptance overseas. The Foreign Trade Policy (FTP 2023) announced by GOI has renewed focus on export initiatives such as Export Promotion Capital Goods (EPCG) Scheme & Free Trade agreement (FTA). Under the former, programs like “Vivaad Se Vishwas Tak” aim at  legacy dispute resolutions & FTA’s though progressing gingerly are being drafted with sharper commercial intent as indicated by the FTA utilisation figures of the recently signed deals with UAE (CEPA) and Australia (ECTA).

Services trade, where we have an edge, promises to be an ocean of opportunity. Afterall 7 T worth services are traded globally & is increasing.  Much of the 320 B Indian services export is dominated by IT & digitally delivered services. Further incentives are being offered tech majors to set up Global Competency Centers (GCC) to boost the sector. Programs such as Gati Shakti will benefit services like logistics & transport. Our services import bill of 177 B has substitution opportunity.  Educational services for instance. We have a civilizational edge in the domain, yet we have a USD 15 B import bill each year a situation that can be easily reversed. Further innovative non-traditional opportunities are likely to emerge. Who knows, as suggested by the PM Modi “Wed In India” & “Band Baaja Baraat” can indeed be a money spinner.

The United States (USD 129 Billion 2022-23) followed by China (USD 114 Billion 2022-23) are India’s two biggest merchandise trading partners. Figures appear close but there is a difference. While we have a balanced trade with the US, in fact a surplus, we have a deficit with China to whom we export only a sixth of what we import. It requires deft manoeuvring when dynamics between your lead customer and primary vendor itself is complicated & independence in policymaking seems the best way forward and there is significant headroom to increase trade with both.

While US & China hog limelight in any discussion about India’s trading partners, a regional block or country wise overview throws up interesting insights of where opportunities might be.

In North America, though Canada (8 B) is more visible in Indian media, it is Mexico (9 B) that is our second biggest merchandise trading partner. It is in fact the biggest export destination for our automobiles. Not surprising that Hyundai retains some distinctly Mexican names like Alcazar, Santa Fe & Tucson even for India. Canada of course exports significant educational services but their recent diplomatic adventurism is sure to impact trade adversely. First six months of this year prove the point. Conversely symbolism like the President of the Mexican Senate Ana Lilia Rivera tying a Rakhee to PM Modi during a G20 meeting points at warmth in relationship that is sure to reflect positively in trade with that country.

The CIS region (Commonwealth of Independent State) offers a stark example of how Geo-Political event impacts trade. Our modest trade with Ukraine (2 B), mostly agri-imports, has come to a naught because of their conflict. Correspondingly & consequently, petro-diplomacy has made Russia our fifth largest trading partner (43 B) from before when it barely figured amongst our top 25. We bought 37 B worth mineral & oil up from 5 B in earlier years. Wartime & post wartime have in any case presented the best business opportunity historically.  

Petro-diplomacy impact is also seen in Europe. Netherlands (USD 28 B) was our top trading partner in the region in 22-23 & is our largest export destination after US & UAE. Rotterdam port is clearly balancing petroleum short supply to Europe from Russia via India. Our petro exports doubled to 12 B to that country. Explains spurt in photo ops of PM Rutte cycling & sipping tea in India. Traditionally, Germany (27 B) & UK (20 B) are our biggest trading partners with a surplus & deficit respectively. Engineering hub Germany is the source for much of our engineering equipment needs and for UK we are their largest scotch buyer! Trade data of European nations reflects their economic trajectory. France & Italy rank lower each year & Switzerland & Belgium are largely restricted to gems & jewelry trade with us. India-Middle East-Europe corridor (IMEC) promises to boost trade with Europe & also bring in Greece & Balkans in the picture. But till then services trade has a steeper opportunity trajectory.

UAE (85 B) & Saudi (53 B) in West Asia & North Africa (WANA) region are our third & fourth largest trading partners in the world. While imports are petroleum led, change in texture of our exports is noticeable. Electrical & engineering goods have an increased share than a decade ago when it was mostly jewelry, Agri-products & cereals. Future of fossils is forcing nations in the region to reengineer their economic model & India seems to be key in their plans. No surprises then that West Asia has seen maximum instances of soft diplomacy in recent years. UAE’s President Mohamed Bin Zayed as Republic Day chief guest, “Order of the Zayed” & “King Abdul Aziz Sash” bestowed on PM Modi, official mourning day on the death of Kuwait’s Emir, Omani Sultan first visit after decades, BAPS temple in Abu Dhabi are examples. FDI has increased from this region in public & private ventures like Indian Oil, Reliance and even the first FDI in Kashmir was from this region! 

Our trade even with Israel (10 B) has doubled in the region & with a healthy surplus. The I2U2 alliance proves we have the capability to do business even with putatively incompatible nations. Even in North Africa symbolic gestures like inviting Egypt’s President El-Sisi as the guest of honor for Republic Day, space-tech collaboration with Tunisia & Algeria and proactive humanitarian aid to Morocco indicates India is actively testing trade waters in the region. The Indian embassy in Tripoli has also reopened after a gap & a resurgent & oil aided Libya, amongst the fastest growing economies in the world once again promises to be a exciting trade partner like before.

Pakistan in our neighborhood is a stark example of political imperative adversely impacting trade and its posturing has even finished off SAARC our regional trade block. Our trade with Pakistan which was 3 B a decade ago has dried to a trickle. Most Indian imports into Pakistan are through UAE and must be contributing to their inflationary woes. Bangladesh (14 B) has trotted along to make it to our top 25 trading partner list. And Sri Lanka as it crawls out of its economic emergency with our help will emerge as a dependable trade partner. Learning for all; since neighbors can’t be chosen its best to keep relationship amicable.

On Republic Day 2018, in a departure from tradition all ASEAN chiefs were invited enblock as guests of honor. Symbolism of this gesture was in line with our look east policy with an eye on trade. Comparing trade numbers from immediately following year 2018-19 with 2022-23 shows that Indonesia (39 B) Singapore (36 B) & Malaysia (20B) our major partners in the region have all grown by 84%, 50% & 70% respectively. Malaysia a bit subdued perhaps because of the brakes we put on palm oil imports as a reaction to their stance against us in OIC as a group with Turkiye & Pakistan. Trade with Vietnam (13 B) has remained flat as that country is also like India aggressively focused on its trade balance and has in fact emerged as an option in the China Pus strategy of global corporations. India & Vietnam will emerge as a collaborative trade partner in domains like EV & Telecom.

Australia (26 B) and Japan (22 B) remain consistent partners in the Oceania region. Former a large supplier of minerals and latter of technology & engineering. QUAD grouping of these two with India born out Geo-Strategic imperatives will only increase collaboration and by incidence trade. Australia seems to be coming out of the Five Eyes (FVEY) shadow and is engaging independently with India. No Indian PM had made a state visit to that country in 30 years till PM Modi broke the ice in 2014. Ever since trade ties have more than doubled from 12 to 26 B and with the visible warmth between PM Albanese more opportunity areas will emerge. Japan through JICA their developmental agency is significantly invested in India’s long term infrastructural projects in any case and with our infrastructure story having just begun trade opportunities will only increase.

An emerging opportunity in Oceania region are the small island nations with whom we do little on no trade. PM Modi has innovatively disrupted the nomenclature paradigm by referring to these “small island nations” as “large ocean countries”. This has totally changed the scale size and potential of this region and opened significant opportunity in areas such as marine agriculture, pisciculture besides opening channels for services trade.

Africa promises to be a sunrise region for our global trade. Together contributing less than 4% of global GDP the continent is experiencing a spate of nationalistic movements in many nations as well as a combined pride in Pan-Africanism. Economy is high on agenda. A third of the 6% plus GDP growth economies are African nations. Inherently wary of erstwhile rapacious colonial powers and distrustful of debt tyranny of China, African nations are comforted by their historical affinity with India. Vaccine diplomacy & onboarding of African Union in to G20 under India presidency add to the comfort. Many amongst the middle-class that include diplomats, bureaucrats & professionals have received their education in India. Currently South Africa (18 B) is our only significant trading partner in the region but Kenya, Nigeria, Rwanda, Nigeria, Mozambique, Congo will offer trade opportunities in future. Politically stability in some other nations will only add to the list. Agri imports, mining, exports of heavy engineering are domains to watch out for. Services trade in IT, education and tourism is an area to watch for.

South American nations are grappling & experimenting with its economic model. Socialism & free market capitalism seem to be competing in this last bastion of the former. Our trade with Brazil the largest economy & a co-member in BRICS has doubled from 7 B to 15 B over the last five years with a trade surplus in our favor. President Lula Da Silva known as pragmatic socialist, was the recipient of the Indira Gandhi peace award in 2010 and his predecessor Bolsonaro was the chief guest on Republic Day as recently as 2020. Brazil is the first country from the continent to ever figure in our top 25 trading partner list. Argentina (5 B) the next biggest economy has just witnessed a transition and under the new President Javier Milei who is grappling with hyperinflation. Once hopefully in control trade is sure to take off with them.  Even in their current state we import over 2 B worth plant & animal based edible oil from them.

In the end, the world is the opportunity for India. Our share of global trade is less that 5% and there is much headroom to grow. Pragmatic diplomacy & policy making have established our reputation as fair partners in trade. The golden period for global trading opportunity is ahead. Entrepreneurs must take educated steps as complexities of global trade are multi-dimensional.

Comparing Luxury: India Vs China

(Note: All figures are latest official figures for 2022-23 rounded off to suit the text. Figures in bracket against each country indicates total trade. E&OE are only mine)

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I pen this article in the backdrop of some recent milestones. Opening of Apple’s first store in Mumbai two decades after it entered India, UN report on population pegging India at the top of the population chart over China for the first time ever and LVMH CEO & luxury Moghul Bernard Arnaut pipping Elon Musk to the post as the world’s richest person. Friends, overseas and Indian, especially in the luxury industry often ask why with a similar 1.4 billion population luxury goods penetration in India is low compared to China. Even at a policy level it begs a fair question why a democratic free market mixed economy state scores low on luxury consumption compared to a post-Deng quasi authoritarian capitalist model. And whether GDP and GDP per capita is the sole indicator of a luxury sales.

While it is true that India’s GDP at USD 3.5 Trillion is a little under sixth of China’s, the gap is not as wide when compared to Gross National Income, GNI or Income Per Capita a more realistic indicator to assess discretionary consumption. India at USD 7000 in PPP (purchasing power parity) terms is just under a third that of Chinas. Yet China outstrips India by many miles in the luxury segment a USD 350 Billion global category constituted of Swiss watches, apparel, perfumes, bags etc. and brands of the likes of LVMH, Hermes, Kering etc.

Let’s look at the scale at which China operates in Luxury. Swiss Watches are a good starter. China imports a whopping USD 2.5 Billion worth Swiss Watches each year compared to USD 200 Million that India does. That’s roughly 17 Lakh watches annually against 1.25 Lakh in India. Luxury retail is another good indicator. Louis Vuitton has over 30 stores in China compared to just 3 in India. Even Apple which took twenty-five years to open its first store in India already has over 40 stores in China. Annual iPhone sales in India at 6 million units is a far cry from the over 50 million sold in China. Or compare the case of luxury cars. Popular marquee brands like Mercedes Benz, BMW, Audi etc. cobble together a sale of 30000 units annually in India. That number exceeds 3 Lakh in China. China by the way at 24 million units is a 6 times bigger market for cars.

Strangely though there is one segment where India outperforms China. Scotch Whisky! USD 350 Million worth was exported into India compared to USD 290 Million to China in 2022 But that’s for another article!

So, the scale at which China operates in Luxury for a similar population count with only 2.6X per capita income dwarfs India in every category. And this is just the mainland comparison not including Hong Kong.

What then is the reason? Surely GDP & GNI are indicators of average prosperity of a nation and its citizens but there are other parameters that drive sales, especially luxury sales. These impact parameters are a long list based on demography, psychography, policy, culture etc. While it is difficult to cover all in depth in a short article, I will attempt to offer a flavor. It will only save impatient luxury brand owners from making impetuous business decisions.

For starters Luxury is a function of urbanization. Only 35% (490 M) of India’s population lives in cities compared to Chinas 63% (882M). India has only 180 urban agglomerates above 3 Lakh compared to Chinas 423. Even amongst top 12 cities, barring Delhi NCR which is more populated than Shanghai, all the rest from Mumbai to Madurai are less populated than Beijing to Dongguan.

Age also matters in Luxury. Older customers apportion more to luxury once life essentials are taken care of. At 38 years, median age of Indians is a full 10 years younger than of the Chinese at 38.

Experiential retail is important in a luxury brands strategy and hence rental costs come into play. For a much smaller economy India’s retail rentals are high. Premium destinations quote around USD 7-10 monthly per Sq. Feet including allied costs which is not far from average mall rentals in China. Besides, China has an oversupply of retail spaces and provinces even offer subsidies to attract anchor brands. In select cases, CP may be more expensive to lease than Wangfujing.

Policy imperative. Luxury Brands prefer total control over their retail operations either directly or through their wholly owned local subsidiaries. In India a 100% control over single brand retail is prohibited till the brand sources inputs worth 30% locally. Pertinent to note that even Apple set up its stores only once their local manufacturing ramped up. Alternatively, brands can at best go to 51% which means it has to rely on local partners who may have the money but may not share the vision and hence reduce the brands enthusiasm. No such hurdles in China. Beside local sourcing and fully owned retail puts less pressure on stock turn than in India.

Add to the lists attributes like funding costs, duties, freight, taxes, exchange rate etc. that make India an expensive market to operate in than China. Bank lending rates in India at over 11% are double that of China. Unit freight costs to reach luxury goods into China, if they are not locally sourced, are cheaper compared with India. Chinese RMB is a stronger currency making imports relatively cheaper and customs duty and GST on luxury goods in India are much higher than China. GST on luxury goods is applied at the highest slab of 28% in India whereas standard VAT rate by comparison in China is a mere 13%.

Operationally India is a much more expensive market to operate in than China and the reason is not just GDP or GNI per capita. Also, the fact that psychographically even rich Indians even today are value conscious and eschew luxury makes matters difficult for Luxury brands. China by comparison is more westernized and amenable to copying western lifestyle.

So, what is the future of Luxury in India. In a single word; Bright. Not in the short term but in the mid to long-term, over say the next ten years, luxury will be a sunrise consumer segment to watch. The sheer headroom and that too over a low base is vast. Urbanization will increase, median age will rise, discretionary affluence will increase, currency will strengthen, infrastructure supply will increase & interest rates will drop, socialistic policy mindset will ease, and India will account for an increasing share of the luxury sector.

And as an end note, it is also not far when Both China and India will also dent the European luxury hegemony and the world will see a few luxury brands emerge from both these countries.

India’s Global Trade