India’s strength is its digital economy, holds huge potential for trade: WTO Chief Economist

Tre Talks: “Cleaving through one of most unstable periods marked with geopolitical tensions, rising protectionism, India is and will surely benefit from derisking supply chain from China,” Ralph Ossa, Chief Economist at World Tre Organisation in an exclusive conversation with Republic Business said. Ossa spoke on a range of issues-from ongoing tariff wars between US-China to Russia-Ukraine war, from potential impact of US recession on world tre to India’s tre potential. Edited excerpts:

On Assessment of World Tre

Tre has h a difficult time in past couple of years. We h pandemic, we h high inflation, we h contractionary monetary policy, contractionary fiscal policy, and so on. But big picture for me is that tre is really or has been and continues to be highly resilient. 

We are expecting volume of merchandise tre to grow by 2.6 per cent in 2024 and 3.3 percent in 2025 after having seen a slight contraction of 1.2 per cent in 2023. If I think ahe, what we are looking at is future of tre and services, particularly digitally delivered services. And this segment of tre has grown at an average of 8.1 per  cent since 2005, outpacing overall tre growth. And this is good news for India because India has tritionally been very strong in this area. 

On Downside Risks for World Tre and India

For me, geopolitical tensions are main risks. We alrey see a fragmentation of tre along geopolitical lines. For example, in a recent analysis, we have split world into two hypotical geopolitical blocs based on voting behaviour at United Nations General Assembly as East Block and West Block. 

It's a bit of an oversimplification, but what you see since beginning of war in Ukraine is that tre between se blocks is growing significantly more slowly than tre within se blocks, which suggests that we are seeing more friend-shoring than before. And for us, this poses a risk to global economy. We have undertaken some simulations where we have simulated worst-case scenario of such global fragmentation and found that worldwide bill incomes could drop by up to five per cent if this came to pass.

Top three suggestions for India to boost tre

I would see three things. first thing I think I've alrey mentioned a couple of times which is built on your strength and strength is a digital economy I think you can benefit tremendously from trend towards digital tre towards digital services. second one is that India is in a good position now to benefit from some of relocation of supply chains away from China. So this is something to be aware of and to be open to. Third, I want to continue contributing to protecting and strengning multilateral tring system in area of digital tre because I think India is as big as it is and as important as it is and also tends to benefit from open, predictable, and multilateral tre as all or countries are in world, which is why we are so grateful for India for its support at WTO.

On India’s tre potential 

India is of course a very large country. It's a very large economy, it's a very fast-growing economy and I think this is widely appreciated across world. A major player also now as firms are trying to find alternative sources of supply because of tensions between United States and China. For me, main thing really to watch out for when I think about India is digitally delivered services. Digital tre. As I said before, this is a very fast-scoring segment of international tre and that's segment where India is tritionally very strong for ex computing services, accounting services, and anything that can be transmitted electronically. So this is true. I think where we see future going. But in medium term, we could also see more manufacturing exports of course coming out of India as some farms are trying to relocate supply chains away from China. 

On protectionism and tariff War 

I mean we see international tre under pressure. We see protectionist tendencies across various parts of world at same time we also see resilient international tre as I mentioned before. But this is something that we have to be very careful about. Because if we want to have a resilient world economy. If we want to have a world economy that pushes for inclusiveness, development, economic security, and sustainability, we do need open and multilateral international tre. So protectionism is not not way to go. As you know, we've seen it in 1930s. When we h protectionism spiralling, this led us and this is of course not a place where we want to be again today.

On Instability in India’s neighborhood

We have instability in many parts of world, we have instability in your region, we have situation in Middle East, and we have situation in Europe. So wherever you look, we have uncertainty and uncertainties, of course not helpful for international tre. best vice I can give is to really invest in an open and predictable and also multilateral tring system, because if you have uncertainty, if you have supply shocks coming from various parts of world, you never know. Where supply shock is going to be hitting and you also never know what tring partner may be able to help you. So really having cast your net widely and not relying on particular tring partners heavily seems like a good strategy going forward. 

We saw this, for example, when we looked at African countries in aftermath of beginning of war in Ukraine, when agricultural exports to Africa dropped dramatically because of war. And what we saw happening is that many of se countries were able to substitute a way to substitute towards alternative sources of supply from very, very diverse origins in United States, Argentina, Europe etc. So really having se multiple options. I think it is key in world of uncertainty.

On US recession and Its impact 

We don't have a particular forecast for United States, but we are also observing se developments closely. A lot will also depend on what Federal Reserve is doing. You've seen nervousness. Let's put it like that in financial markets and given size of United States in global economy, of course, it's also an important determinant of international tre. What we h to worry about more in past was Europe. If I look at situation in Europe last year, for example, because of high inflation rates and because of high energy prices, that's really what dragged down international tre. And so at least for now, we are looking more optimistically towards North America's contribution to international tre. 

On Russia-Ukraine war 

This conflict has not been good for exporting prospects of both countries. When we look at our latest figures, Ukrainian exports are down 18 percent. Russian exports are four percent. This is in value times. I should say not more than volume times compared to 2019. But what's more significant than that is really change in pattern of tre. So Russian exports to Europe have really collapsed. For example, Russian exports to Germany fell 94 percent. And on or hand. Russian exports to or tring partners have increased substantially, including India, where Russian exports have increased more than eightfold. 

On rising protectionism and biggest worry

Look, I think we as a world. We as a world economy face three major challenges today. one challenge is we need to maintain peace and security. second challenge is that we need to reduce poverty and inequality. And third challenge is that we need to achieve a sustainable economy and my worry is that more and more people are perceiving tre as being part of problem when it is as far as overcoming se challenges is concerned. And that's in part what's fueling se protectionist tendencies whereas really tre is part of solution. So I think really getting back to a point where people understand importance of tre to deliver a more secure and more inclusive more sustainable economy. That's really very important and that's what we're trying to do. We are trying to contribute. We wrote a whole report last year, you know, trying to make this case and trying to convince people that tre is really a force for good if conducted rightly. 

On US-China, EU-China tariff war and its impact

I mean we see that if we look at bilateral tre between United States and China, it is growing much more slowly than it would have without se tariffs in place, and without se tensions mounting, that's very clear in data we do see. 

Some of se tre flows are of course being diverted to or countries and India is one of m, and Vietnam is one of m. Mexico is one of m. And to some extent having a bit of a diversification of supply chains is also not a b thing because of course, we don't want over-concentrated supply chains. I think what we really have to be careful about is that we get to a point where people think that making everything domestically home, showing reshoring se kinds of things are solution because y are not, think about pandemic, initially yes, re were supply chain disruptions, but n pretty quickly, where did all masks come from? Where did all home Office equipment come from? Where did vaccines come from? Where did personal protective equipment come from and so on? That was on international tre. So yes, international tre can be a source of instability, perhaps in short one. But n history has shown over and over again that it's really a source of resilience and I think we really need to protect and to preserve that. 

On de-risking of supply chain from China and its impact

I mean I sense that India is alrey emerging as one of winners but of course, we have to be careful that that this relocation of supply chains now doesn't come at expense of integrity of multilateral tring system, and that this is not just a short one victory for individual countries now that you know perhaps get economic activity that y wouldn't have received orwise but that we maintained integrity of system which is why I must think for India to also fight for system and continue fight for system as y are doing so. 

But what stands out as far as India is concerned for you? 

India is an attractive place now for manufacturing firms that are looking for alternative locations but not just India, we also have Mexico, and Vietnam as well. I think it depends a lot on industries.

But n also as I said before, even though this is topic of today, it's really important not to forget about longer objectives or long-term strengths and whole digital economy. I think it is very important. 

Outlook on India’s growth and tre growth

India has been growing very quickly over past years and of course, we all hope and anticipate that this growth is going to continue. 

And that it is going to continue and improve living conditions for so many millions and millions of people as it has done in past. And I also hope that India continues to leverage international tre. I think in many Western countries at least it has a b reputation because people think that international tre is b for impulsiveness. And that's because import competition from countries like China has led to some disruptions and labour markets in vanced countries. But if you think about Indian experience, if you think about Chinese experience, you really see power of international tre to transform lives of millions and billions of people.