India needs more than trade deals for long-term gains: Emkay Report

India needs more than trade deals for long-term gains amid global trade tensions, says an Emkay Research report. It highlights corporate agility blunting tariffs and notes that India faces a disproportionate hit, with gains coming at lower margins.

Trade Deals 'Not Enough' Amid Global Reordering

As global trade undergoes a fresh reordering amid renewed tariff tensions, India will need much more than trade deals to secure long-term gains, according to a report by Emkay Research.

The report noted that tariffs have had a limited impact on correcting global trade imbalances in the current cycle, highlighting the growing agility of global corporations in adapting to trade disruptions. The report observed that "Trade War 2.0" has unfolded with China deploying a familiar strategy seen during Trade War 1.0, though this time with greater refinement and preparedness. Despite higher tariffs, global trade flows have adjusted rather than collapsed, as companies rerouted supply chains and diversified markets to cushion the impact. It stated, "Global trade reorder and India - trade deal is not enough.......Tariffs have had limited impact on global trade imbalances this cycle, underscoring corporate agility".

India's Structural Trade Challenges

The report also mentioned that India, however, has faced a disproportionate tariff hit in this phase of global trade tensions. While there are early signs of market diversification by Indian exporters, these gains have largely come at the cost of lower margins. It pointed out that meaningful diversification in products and supply chains remains limited, indicating structural challenges in India's trade ecosystem.

The 'J-Curve' Dynamic and Its Conditions

The report explained that despite the weakness in the Indian rupee (INR), India's ability to sustain export-led gains follows a "J-curve" dynamic. The J-curve refers to a phenomenon where a country's trade balance initially worsens before improving to a level higher than before a policy change or economic shock. However, the report cautioned that such gains will be durable only if several conditions are met.

Path to Sustained Growth: Key Reforms Highlighted

According to the report, trade diversion must become embedded in "sticky" supply chains through scale in key sectoral verticals. Improvements in logistics, customs procedures and port efficiencies are also crucial to support sustained export growth. Additionally, restrained tariffs on capital goods and intermediate inputs will be essential to enhance competitiveness and avoid further margin pressure.

The report further highlighted the importance of long-term foreign direct investment (FDI) inflows to build capacity and strengthen supply chains. Managing two-way foreign exchange volatility was also highlighted as a key factor in supporting exporters over the medium term.

The report concluded that these structural and operational factors will matter far more than tariffs alone in determining India's trade performance in the coming years. While trade deals may offer short-term relief, the report stressed that long-term gains will depend on deeper reforms and supply-chain integration rather than tariff-led strategies alone.

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