Challenges in India's export in high-growth markets
This article is authored by Dulles Krishnan, VP, Go to Market, Avalara.
India's export environment has undergone significant transformation over the past few years, driven by policy changes, global market shifts, and growing industrial capabilities. With a focus on diversifying export markets and products, India has become a key player in sectors like pharmaceuticals, textiles, engineering goods, and IT services. The government's Make in India initiative and various trade agreements have supported this shift, encouraging domestic manufacturing and facilitating easier access to high-growth markets like the United States (US), European Union (EU) and the United Arab Emirates (UAE).
While challenges like supply chain disruptions, global economic slowdowns, and regulatory complexities persist, India's export landscape continues to evolve, emphasising digitalisation, innovation, and sustainability in meeting the demands of both traditional and emerging markets. This is evident, as merchandise exports in October 2024 reached $ 39.20 billion, compared to $ 33.43 billion in October 2023, reflecting a growth of 17.23%. To enhance this situation further, it is crucial to address significant barriers such as operational inefficiencies, compliance challenges, and underlying structural issues.
When it comes to cross-border trade, Indian exporters often find themselves juggling a lot of paperwork, especially with varying tax rules and documentation for each stage of the shipping process. For example, exports like electronics and machinery require specific safety certifications and tests to meet international standards. On top of that, exporters also have to account for extra costs like freight insurance, credit insurance, and certifications that vary by market. Another tricky part is the risk of misclassifying products with the wrong HS codes, essential for taxes and trade regulations.
Getting these codes right can be challenging due to a lack of clear classification data, lack of expertise, and sometimes insufficient information in the invoices. This makes navigating the whole process a bit more complicated for businesses. To overcome this, automation and digital platforms, particularly cloud-based tax automation software, can significantly streamline operations. It automates tax calculations, documentation, and compliance checks, reducing errors and accelerating processing times. Real-time data access allows quicker updates, smoother customs clearance, and better shipment tracking.
Automation can decrease delays and increase accuracy, helping exporters reduce overhead costs, improve competitiveness, and simplify the export process, making trade faster and more efficient. Furthermore, cross-border payment complications like transaction delays, currency exchange fluctuations, and payment preferences can disrupt cash flow and impede business operations. Here, partnerships with financial institutions can facilitate secure, seamless payment systems by offering multiple payment methods, like QR codes, credit cards, or net banking, to ensure smoother, faster transactions.
Under structural and policy obstacles, the lack of export diversification in products and markets must be checked. The country's export basket relies heavily on sectors like textiles, pharmaceuticals, and IT services, with trade focused on a few advanced economies. This concentration increases vulnerability to market shocks, demand fluctuations, and economic slowdowns in those regions. To address this, India must promote high-value, technology-driven sectors such as electronics, renewable energy, and medical devices through targeted incentives and research and development support. Alongside this, strengthening trade relationships with emerging markets through bilateral agreements and market exploration initiatives is equally critical.
Progress has already been made with recent Free Trade Agreements (FTAs) signed with the UAE and Australia and ongoing negotiations for a Trade and Economic Partnership Agreement (TEPA) with the European Free Trade Association (EFTA) countries. These efforts and strategic policies can help India diversify its export portfolio, enhance competitiveness, and reduce dependence on traditional markets. Additionally, due to complexity and inconsistency, India's tariff structure and export promotion schemes face challenges. Here, digital platforms can also offer real-time updates on tariffs, duties, and incentive eligibility, improving clarity and compliance, creating a more supportive trade environment, and boosting India's global export performance.
In high-growth markets, businesses must prioritise a seamless customer experience and efficient cross-border processes. Offering multilingual options, local payment methods, and clear tax breakdowns during checkout can foster greater trust. With this, leveraging automated tax compliance solutions can help businesses streamline compliance, minimise customs delays, and avoid penalties. These tools ensure more accurate classification and efficient tax calculation, making exports smoother and boosting the growth potential. Hence, despite challenges posed by the global macroeconomic environment, India's strategic realignment of its foreign trade policy to the changing international trade dynamics will be vital for achieving this ambitious goal.
This article is authored by Dulles Krishnan, VP, Go to Market, Avalara.
