Diversification holds the key to reducing our trade vulnerability

India's merchandise exports are less exposed to US policy vagaries than services. The latter need to find new export markets

- SUDIPTO MUNDLE

India, like the rest of the world, is navigating its way through exceptionally uncertain times.

Much of this uncertainty is attributable to the quixotic policies and flip-flops of US President Donald Trump. The US is the largest economy in the world, accounting for about a fourth of global GDP in nominal terms and Trump is the most powerful man in the world. His executive orders, dealing with the US as much as with its global strategic and trade policies, whether legal or not, unleash waves of turmoil almost daily. We need to minimize our exposure to such turmoil.

A major source of India’s current exposure to such turmoil is its trade relations with the US. Official-level discussions on the trade agreement being negotiated are over. But without President Trump's approval, the shape of the final agreement is not clear. Given that, it is important to be clear about our vulnerabilities and options to minimize such vulnerabilities. As we pointed out in the midterm review of the economy by National Institute of Public Finance and Policy (NIPFP) on 11 November, India’s goods exports to the US are quite limited. About 80% of India’s merchandise exports are to other countries and have no exposure to the US. Of our five largest merchandise exports, 70% go to other countries.