India’s next phase of economic growth will depend on reducing both external trade barriers and domestic investment restrictions that continue to weigh on exports, productivity and investor confidence, according to a report by policy think tank Competere Foundation.
Externally, Indian exporters continue to face market-access barriers, tariffs and expanding behind-the-border regulatory barriers in major markets.
“Indian exporters face increasing barriers from the expansion of the European regulatory zone, especially in sanitary and phytosanitary rules, technical barriers to trade, pesticide residue standards, conformity assessment, sustainability rules and related regulatory systems,” the report, titled India’s Reform Trajectory, Market Distortions and the Next Frontier for Growth and Competitiveness, said.
While India has made significant progress through trade agreements and economic reforms, exporters continue to face rising market-access barriers abroad, the report pointed out.
It also cautioned that the proposed dynamic alignment of sanitary and phytosanitary rules between the United Kingdom (UK) and the European Union (EU) could reduce the practical value of agricultural concessions secured under the India-UK Free Trade Agreement. The proposed UK-EU framework aims to remove routine agri-food border checks by requiring the UK to automatically align with EU food safety, animal health and plant health standards.
Domestically, the report identifies restrictions in retail, e-commerce and digital markets and recommends easing them. Foreign direct investment (FDI) restrictions in sectors such as e-commerce and retail limit the country’s long-term growth potential, it said.
The Indian government recently allowed FDI in inventory-based e-commerce, provided the products are manufactured in India and meant exclusively for exports.
“Multi-brand retail trading remains subject to a 51 per cent foreign investment cap under the government route, with minimum investment, back-end infrastructure, local sourcing and state-level conditions,” the report flagged. “These restrictions limit the ability of foreign-funded firms to deploy integrated retail, logistics, procurement, pricing and fulfilment models that may lower costs, improve consumer outcomes and diffuse productivity-enhancing practices across the Indian economy.”
It also raised concerns about competition policy drift in digital markets, including global-turnover-based penalty guidelines and proposals for an ex ante Digital Competition Bill.
“Competere Foundation estimates that the remaining distortions analysed in this report impose a combined economic loss of approximately $173.6 billion on the Indian economy over five years, equivalent to roughly 4.2 per cent of GDP (gross domestic product),” the report said. “Foreign-investment restrictions account for approximately $127.2 billion of that loss. Competition-policy drift accounts for approximately $46.4 billion,” it added.
The report recommended that India build on its domestic reform agenda by reviewing sector-specific investment caps, maintaining an evidence-based competition framework and working with like-minded exporting nations to push back against disproportionate and non-science-based regulatory barriers in overseas markets.
