The MMA Annual Convention 2025 featured Brajendra Navnit, IAS, Principal Secretary, Tamil Nadu, discussing India’s economic resilience, global trade shifts, surplus management, and strategies for sustainable growth.
Resilience holds different meanings for different individuals. I will confine my remarks to the resilience of the Indian economy.
To achieve resilience, we must establish multiple layers of foundations. India has undergone various reforms and gained experiences. Trade plays a vital role in this. It’s important to put the numbers in perspective. We are potentially reaching a $4 trillion economy. If we estimate that 60% is driven by consumption, then it translates to roughly $2.25 to $2.5 trillion in domestic consumption.
However, look at the opportunities available for the industry to capitalise on. According to the latest WTO data, global trade is approximately $32 trillion, with $25 trillion in goods and $7 trillion in services. However, I believe the services figure is understated. Many embedded services are categorised as goods. Therefore, a more accurate representation would be $20 trillion in goods trade and about $12 trillion in services, roughly a 60/40 ratio, with services growing at a faster pace.
Focus on Global Trade
Consequently, if you are an industry player or an investor, you should consider aiming for a $2.5 trillion domestic market or a portion of the $32 trillion global market. Even 10% of the global market translates to $3.2 trillion. While we hold approximately 75% of domestic consumption as domestic manufacturers or service providers, our global share is significantly smaller, around 2% for goods and perhaps 4% for services.
This presents a significant opportunity to enhance India’s economic resilience by tapping into the potential for growth in global trade. It is often easier to increase market share from 2% to 5% than to grow from 75% to 90% domestically. Even a small percentage growth in global trade results in a substantial increase in the overall market size.
The Challenge Lies in Managing Surpluses
However, it’s crucial to acknowledge that the established principles of economics and global trade are undergoing a transformation. Our businesses, colleges, universities, and faculties must first unlearn what we have been taught. We have been conditioned to excel in managing scarcity, demonstrating resilience in challenging situations. However, we struggle to manage surpluses effectively, whether in personal, family, societal, or economic contexts.
India has now emerged as a nation facing surpluses in various sectors. The question is whether we are optimally deploying these surplus resources, be it in demography, agriculture, services, or manufacturing. What I have observed is that we are often unaware of our surpluses and potential. Like the story of Hanuman, we need to be reminded of our strengths.
Fortunately, the world recognises India as a force with the potential for a great leap. In my interactions with diplomats and trade ministers, it’s clear they view India as a key player in shaping the global economy. They seek to participate in the global market, and particularly the Indian market, through India.
Concerns of International Players
Their primary concern is that, despite our economic opening, their participation remains limited. While they have reconciled with this, their second concern is that we are displacing them from their established markets. This is a valid concern, as our industries have gained market share, particularly in services, posing a challenge to countries with significant trade surpluses in those areas. They have also come to terms with this, acknowledging their inability to compete on cost and human resources.
However, their most pressing concern is that even in markets where they maintain a presence, India is driving down costs. Our frugality and innovation, exemplified by UPI’s impact on the global financial market, are reshaping the landscape. What UPI has achieved in a few years was previously unattainable in decades. Today, India accounts for 45% of global live digital payment transactions, surpassing the combined volume of North America and Europe. This shift has enabled a transition from asset-based lending to transaction-based lending, benefitting young entrepreneurs and first-generation industrialists who may lack the assets to secure traditional financing.
Fundamentals Being Questioned
Returning to the topic of evolving economic theories, the principle of comparative advantage, which has long been the foundation of trade, is being questioned. It is no longer the primary focus in high-level trade negotiations. The emphasis has shifted to addressing persistent surpluses and deficits between countries, employment considerations, and Forex availability.
To build resilience in this evolving world, the concept of low-cost, just-in-time production is being replaced by a ‘just-in-case’ approach. Investors and industrialists are willing to invest more to ensure supply chain resilience and avoid disruptions by centralising or localising supply. This shift may pose a challenge to industries where the ‘winner takes all’ dynamic has historically prevailed, as companies seek to diversify their supply chains.
The business re-engineering landscape is also being challenged by shifts in two long-standing trends: fuel subsidies and labour subsidies. For the past 50 years, the Western world, and some of the East Asian rising developing economies that transitioned into developed economies, thrived on cheap energy and labour. However, in today’s geopolitical scenario, post-pandemic and post-geopolitical struggle, both these subsidies are challenged. The consumers of the Western world are now experiencing inflation and rising prices. Two generations of Europe and America have not known what inflation is.
Looking at Higher Inflation Scenario
This willingness to accept higher energy prices and wages to support domestic industries will lead to a sustained period of higher inflation. Forget for a moment the impact of CBAM, where steel will be 20% costlier. Forget the impact of EUDR, the deforestation regulation, where the input cost will further rise. You can imagine the kind of steady inflation scenario the Western world, or the reserve currency world, is looking at. It is no longer 2% or lower—it has to be higher because someone has to pay. Either you pay from the government side with subsidies, which is inflationary, or you use monetary stimulus to do that, which again leads to higher inflation. Our industry has to be ready for the cost of capital to build that resilience.
If a 5% risk-free US Treasury investment is available across the globe and you add the inflation differential markup between that country and yours, you need to prepare for higher capital costs. We are also seeing the flight of capital and the strengthening of the dollar, which raises the question of whether our industry is willing to tap external resources at that cost for a longer period. Therefore, we need to see how we are going to cope with the end of the low inflation scenario in the Western world.
Challenges from CBAM and EUDR
The implementation of the Carbon Border Adjustment Mechanism (CBAM) and the EU Deforestation Regulation (EUDR) also presents challenges. We have understood that our business with Europe is only affected to a marginal extent. But it is not so. Businesses must prepare to be resilient because the EU is a big consumer and importer of products covered under EUDR and CBAM. The EU’s decision to restrict certain products will create two classes of goods, and suppliers will not change their supply mechanisms overnight.
For instance, blast furnaces cannot switch to electric arc furnaces overnight. This will likely result in a surplus of products, which were consumed in Europe now available for the global market. This could lead to an influx of these materials into our supply chain. While downstream manufacturers may benefit, primary producers will face significant challenges competing with this influx. Consequently, larger industries will face the threat of having two products with different standards and pricing, undermining competitiveness in the domestic market.
On deforestation regulation, the challenge is traceability. I don’t think India is ready for traceability. This means industries like leather and footwear in Tamil Nadu will need to push traceability to the level of linking products to specific cattle areas and grazing grounds. It must be ensured that the source of raw materials is free from deforestation.
Focus on 3 “A”s and 3 Building Blocks
In India, many financial experts are familiar with the credit rating scenario. ‘Single-A’ rating is very good, but everyone aspires for a ‘Triple-A’ rating. For a resilient India, we should strive for a “Triple A” rating that goes beyond the typical credit market rating. This rating should focus on three key factors: Availability, Accessibility, and Affordability. While availability is generally good, we must ensure that resources and opportunities are both accessible and affordable.
Technology, finance, and trade are the building blocks for a country to grow in the next decade or two. To that end, I exhort the private sector to engage in joint ventures and even free trade agreements. You would have seen that after a significant push, we concluded the Trade and Economic Partnership Agreement (TEPA) with four EFTA countries—Switzerland, Iceland, Liechtenstein, and Norway.
For the first time, we got a commitment from EFTA for 100 billion dollars FDI investment in India over the next 15 years. This investment brings in technology partners and allows us to grow by combining technology and finance, which is unique. People were initially sceptical about its success, but fortunately, it has worked. Now, the challenge for the industry is to connect with partners in countries like Switzerland, Norway, and Iceland and bring those partners here to move forward.
Tells Us What You Need
Based on my experience in finance and economic ministries at the centre, state, and in Geneva, I would like to highlight the fact that while I have received numerous memorandums from the industry, unfortunately, I am yet to see a single memorandum from our industries outlining what they need in other countries. All the missions and trade diplomats are busy identifying loopholes, lacunae, and barriers in the export market.
My plea to the industry is to inform us of the challenges you face in market access. When I talk to industry representatives privately, they fear that whatever little they are doing in that country might be jeopardised if they complain. This concern might have been valid 20 years ago, but today, India is not going to be pushed around in such discussions. Your input will remain anonymous, so please come forward as an association and let us know your needs.
Need for Unlearning
Lastly, I believe unlearning is crucial. I’ll share a couple of examples. During the Uruguay Round negotiations at the WTO in the mid-80s and early 90s, we believed we could not compete. Today, we export 50 billion worth of agricultural products, which is causing concern for countries like Australia, Canada, New Zealand, South America, and the US. The crux of the matter is that we were made to believe we would never have the capacity to subsidise.
The WTO says that India pays a certain amount in subsidies to the agriculture sector. The calculation is based on the 1986-88 average price for rice and wheat. Anything paid above three rupees per kg to Indian farmers is considered a subsidy. Today, we subsidise 90% because we are buying at 30 rupees per kg, while our forefathers committed in the WTO to buy at three rupees, without accounting for inflation or price rise.
Another example is the agreement we made about tariffs and subsidies. We were told we had higher tariffs, so we could keep them, while others kept their subsidies. Today, developed economies still provide substantial subsidies to their manufacturers, particularly in the agriculture sector, while our tariffs have been reduced. This discrepancy needs to be addressed. In the sunrise sectors, the same theory is applied, but we lack the deep pockets to compete. Therefore, we need to build resilience in these sectors despite our limitations.
To build a resilient economy, we need to do a lot of unlearning. New rules must be written, and we should be part of this process. Time is running out for us. We often talk about our demographic advantage, but we must not become old before becoming rich. We need to move faster.
