India was a trading giant in the past. Can it win back the crown?

When people talk about the world’s biggest trading giants, India is not the first (or second, or third) country that comes to mind. Even South Korea, with a population smaller than Karnataka, is ahead of us, and a much bigger exporter.

India’s dropped ball on trade, if unresolved, will be costly. Some missed opportunities are expensive. Consider Virat Kohli’s dropped catch against New Zealand in 2014, which allowed NZ batsman Brendon McCullum to hit a triple ton in a match that cost India the series.

India does not have a good excuse for how badly it lags on trade. The country has many inherent trade advantages that benefited it historically - its location, beautifully situated between the West and the East; its long coastline, which enabled the rise of many famous ancient ports like Nagapattinam and Muziris, its fertile deltas and plains, and its merchants and artisans, that made it a hub of industry, allowing it to export pearls, pepper, textiles. In my book The Outsiders, I write about the pepper trade between Rome and the South Indian Muziris port (near modern Kochi).The Chera empire that owned the Muziris port became incredibly wealthy, as Roman ships came for Indian pepper, and traded gold, amphorae and beads in exchange. People harvested pepper from the foothills of the Western Ghats, and brought it via dugout canoes to the Muziris warehouses.

A popular necklace in Kerala is the coin necklace (kasu mala). It’s a heavy traditional design that you often see around the necks of Malayali brides. The style dates back to when people strung the Roman coins they received from trade around their necks, to advertise their wealth.

Such trading wealth brought similar windfall later to the Chola empire, which flourished for centuries as a trading hub and by selling pearls and spices to other empires. Its port, Nagapattinam, was famous for lamps that burned all night, to guide foreign ships to shore. These Indian ports coordinated sea traffic, taxed ships and merchants, and managed giant shipyards.

In fact, the most successful Indian empires all had a shared secret to prosperity – the Cheras, Pallavas, Cholas and the Mughals built their wealth via trade. Estimates put trade as accounting for as much as half of the revenues for the Mughal Empire, which was the world’s second-largest exporter in the 17th century. 

Fast forward to now. The biggest exporter is, of course, China. Comparisons of India with China trigger a lot of “what ifs” and chest beating among Indians. In 1980, China’s exports as a percentage of GDP was 6%, and India’s was 5%. Between 1980 and 2008, India comprehensively lost the trade race against China. In 2008, exports as a percentage of GDP was 30% for China and 13% for India.

India has been trying to catch up in the past few years, and since 2020 its share of exports to GDP has climbed to 22%. But it is trying to expand its global trade footprint decades after China, and is now competing against a country that has become a massive manufacturing giant, one that is threatening everyone from Germany in cars, India in steel, European majors in electrical machinery, Bangladesh in textiles, and so on. While India is now providing incentive programs like PLI schemes for manufacturing and exports, it faces a much tougher global market.

Because of the China effect, the easy wins in trade may already be over. The West is worried about China’s meteoric rise and the impact on their own companies. This defensive crouch is dismantling some of the foundations of global trade. One is the slow death (or more accurately, deliberate assassination) of the World Trade Organization, thanks to US interference. In 2024, the US blocked, for the 75th time, a WTO motion to fill vacancies on its dispute panel.

The vacancies in WTO have prevented the dispute mechanism from functioning, which is what the US prefers. Without the WTO’s arbitration, it’s a wild time in trade relationships. China’s subsidy bill for its exporters is soaring. India has been busy raising tariffs on a wide range of goods. The US is sanctioning countries left and right – including entities that go anywhere near Russian crude oil. President Trump’s announcement of 25% tariffs on Mexican and Canadian imports from February 1 is just one data point in ongoing, rising protectionism.

Atmanirbhar is not just in fashion in India – it’s everywhere, with China, the US, and EU all channelling billions of dollars into industrial support. Governments are pushing initiatives with a domestic focus (“Made in Canada”, “Made in Australia”). The value of global trade impacted by sanctions and restrictions has increased by 160% in just one year, according to the WTO.

India is in a more fortunate position than most countries in this world of rising sanctions and tariffs. One, it is viewed more positively than China by the world’s biggest importers, the US and Europe. Second, countries see it as a China+1 alternative in the global supply chain. It has many young people willing to work, and the potential for it as a manufacturing powerhouse has been obvious for years.

But as usual, we have hobbled ourselves. In a debate about India’s potential, a Singaporean recently said to me, “India will always be a day late and a dollar short”. We are seen this way because we tie our businesses up with red tape, have unclear regulations, and steep tariffs on critical components that exporters need to be competitive. Taxes are increasingly burdensome. India for example, has an 18% GST on construction. 

 A factory owner recently discussed having to pay a 2% stamp duty in Thailand, versus 6% in Maharashtra, and on top of that, “a standard bribe for registering the property”. Making it even harder for exporters, the RBI in the past several quarters, kept the rupee in a crawling peg to the dollar, defending it instead of allowing it to depreciate and find its natural level. All this has been bad for Indian exporters.

Believing in India’s promise sometimes feels like an exercise in forgetting. Similar headlines about the country’s immense promise were published in 1984, 1991, 2009. Now in 2025, one wonders: will the government finally do enough for the country to meet its potential?

In the lead-up to the budget, there have been noises of India lowering tariffs in critical components to allow exporters to be competitive. We have been boosting our PLI schemes. But we need to do a lot more with both trade and business barriers, to emerge as any kind of reasonable alternative to China.

It’s difficult to change a country’s essential personality. And India’s hesitation to continue with tough reforms has been a pattern over the last two decades. But breaking out of this mold is the only way forward to take on rising competitors like Mexico and Vietnam, let alone China.

Else, that trading crown will remain out of reach, and in the distant past.

(The author, Devi Yesodharan, is the Chief Marketing Officer at Trendlyne. She is the author of Empire (2017), which was longlisted for the JCB Prize and the Tata Lit Live! First Book Award, and The Outsiders (2024), published by Penguin Vintage. She has previously worked as a speechwriter for Narayana Murthy and on Imagining India, Nandan Nilekani’s first book.)

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