Date: 14/09/2022

Relevance: GS-3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

Key Phrases: Industry 4.0, Trade 4.0, and Digitization of commerce, External Shocks, India: Adoption of new changes.

Context:

• The digitalization of commerce in Industry 4.0 - the application of advanced digital technologies to production and operations techniques - is revolutionizing how the world makes, transports, and sells goods.
• Enter Trade 4.0, which is transforming global trade ecosystems at an unparalleled velocity and creating significant market and economic shifts.

Background

• All facets of international trade - from processing of goods at ports of entry, to security of supply chains, to formulation of trade agreements - are adapting to this wave of transformation.
• After a year of stupendous export performance, the question arises whether exports can sustainably contribute to India’s GDP and help it achieve its ambition of becoming a $5-trillion economy.
• There is optimism that exports can grow much faster, especially in services, given the emphasis on digitization across the globe. The government has been pushing the export growth agenda.
• However, for an economy that is primarily driven by domestic demand, relying on a sustained contribution of exports to GDP is questionable.
• The contribution of exports can dramatically change, both positively and negatively.
• External shocks, such as global economic slowdown, fluctuating valuation of foreign currencies, and changes in policies by importing countries, amongst others, that India has no control over, make it a difficult sector to rely on.

Drivers shaping future trade

• The trade landscape itself is changing dramatically with three defining drivers shaping trade of the future -
  • Technology,
  • Geopolitics and global exigencies, and
  • Climate change.
• While all three drivers will be critical in redefining the trade landscape, the role of technology is intriguing.
• Even though several changes are already visible and much anticipated, a few might be somewhat distant.
• As the world leaps forward to Trade 4.0 with changing technology, it is redefining what we trade, how we trade, and who trades what.
• Besides, digitization is also democratizing new possibilities for a more inclusive trading system by increasing the participation of women, MSMEs, local agricultural producers, and remote entrepreneurs.

Huge opportunity

• India has a great opportunity as Trade 4.0 gathers momentum. India has demonstrated a comparative advantage in the technology services sector.
• India’s services export has increased rapidly over the past decade with computer services accounting for around 49 per cent of the total exports in FY2021.
• India can benefit from the changing trade landscape and by capturing a greater share of global technology services.
• The government’s role as the creator, facilitator, enforcer and negotiator will be critical in India’s progress towards the Trade 4.0 revolution.
• The country will need investment in physical and digital infrastructure.
• Human capital will be the key, and the government must prepare its people with the right skills by collaborating with globally Recognised universities and international institutes to ensure quality delivery of transformative services.
• These will enable an efficient flow of people, products, and services, thereby reducing the cost of doing business and ensuring economies of scale.

Trade 4.0

• At the same time, as Trade 4.0 evolves, the government must ensure it protects its industry from anti-dumping or commodity subsidization and citizens by upholding safety standards and protecting consumers.
• For that, it needs to establish an adequate regulatory framework for trade policy measures, enforce laws and policies and adjudicate disputes efficiently, and keep pace with innovations and disruptions they are causing.
• Trade 4.0 will -
  • Necessitate jurisdiction and laws to strengthen international patent rights;
  • Re-design intellectual property and its protection;
  • Ensure privacy and personal data/consumer protection;
  • Impose web content restriction and competition policy and develop cybersecurity to deter non-compliance and fraudulent behavior.

India: Adoption of new changes

• Indian industry will also have to adapt to the new trade ecosystem.
• Adapting to the changing nature of cross-border transactions, identifying the right market, managing real-time inventories, increasing online presence, and tapping into customer preferences will require Indian businesses to unlearn old methods and learn new techniques of doing trade.
• Taking advantage of and adopting emerging technologies will be the key.
  • For instance, big data analytics will help identify customers and plan demand, whereas AI and smart robots will help reduce transport, logistics, and inventory costs.
• Currently, India’s exports account for only 2.1 per cent of the global exports of goods and services; its share in global merchandise exports is even smaller at 1.7 per cent.

Way Forward

• Given the dominance of Global Value Chain (GVC) exports in overall exports, no country can sustain rapid growth in exports without improving its GVC participation.
• Industry 4.0 has crossed borders to become Trade 4.0. To mitigate the risks and reap its benefits, the government should adapt its role as a facilitator, enforcer, and negotiator of Trade 4.0 at the intersection of digitalization and globalization.
• Trade 4.0 will help India increase its participation in and move up the global value chain by delivering quality products and services using advanced technology.

Source: The Hindu BL

Mains Question:

Q. The trade landscape in India is changing dramatically with three defining drivers shaping trade of the future - Technology, Geopolitics and global exigencies, and Climate change. Discuss. [250 Words].