India confronts multidimensional challenges in the area of global trade, namely, geopolitics, supply chain disruptions, falling aggregate demand and inflationary pressures, and digitalisation. The most pressing challenge is to understand how digitalisation is changing the industrial structure and its far-reaching impact on India’s trade. The new Foreign Trade Policy rightly underlines the importance of addressing these challenges and sets out an ambitious export target of $2 trillion by 2030.

Digitalisation is changing the industrial structure of emerging economies, which has important employment implications. A new study, ‘Digital de-industrialisation, global value chains, and structural transformation’, shows that digitalisation is facilitating structural transformation in developing economies, including by expanding gains from participating in global value chains.

Digital technologies are boosting labour productivity in the manufacturing sector but reducing the share of manufacturing in total employment, indicating an employment shift from agriculture towards services. This increases concerns around de-industrialisation and manufacturing-led job creation in India, especially at a time when unemployment has reached as high as 8.11 per cent in April 2023.

It is a well-established fact that the digitalisation of manufacturing operations not only improves competitiveness but also contributes to product complexity, which can in turn create new jobs. It is important for policymakers to identify areas of manufacturing value chains where digital content can be enhanced through appropriate policy interventions to boost India’s global trade competitiveness.

Take the case of apparels: while modern lasers can displace workers involved in cutting of fabrics, the resultant productivity gains can create more output and employment opportunities in another task, such as stitching, which is harder to automate. New jobs in the garments value chain can also be created through the operation and maintenance of computer-controlled equipment and in STEM-related occupations, in managerial capacities and in entrepreneurship. For large-scale employment gains, it is critical to develop a coherent digital industrial policy that maintains comparative advantage in labour-intensive manufacturing and facilitates domestic integration of the manufacturing sector with the local tech/digital sector.

Re-skilling of workers and reducing labour market frictions, such as high labour mobility costs, are key complements.

Realign policy

For India to achieve its export target, it needs to make consistent efforts to realign its digital trade policy with the evolving digitalised nature of global trade. One of the most important areas in the Foreign Trade Policy is the role of e-commerce in promoting cross-border trade in the digital economy.

However, the policy is silent on the crucial aspects of digitalisation and its potential implications for India’s integration into global value chains, the nature of employment, competitiveness and firm productivity, among others.

India’s digital trade policy needs to retain space to navigate cross-border issues related to data flows, data localisation and source-code sharing. This can support the development of a national digital industry through creation of data and platform-based public goods that incentivise domestic digital start-ups and online marketplaces. Moreover, firms using domestic digital platforms to export goods and services need to be incentivised through trade promotion policies.

There is a need for a “digitally-informed trade policy”, that emphasises on building digital infrastructure, digital connectivity, big data analytics, digital skills and trade analytics.

Banga is a Research Fellow at the Institute of Development Studies, UK, and Singh is an Associate Professor at FORE School of Management, New Delhi. Views are personal