By Sanskriti Global Exports by Himanshu Gupta
The Compass and the Storm: Charting India's Trade Course in Early 2025
As the new year unfolds, the global trade landscape for Indian professionals is anything but static. The familiar currents of opportunity are met with strengthening headwinds of geopolitical tension and evolving regulatory frameworks. For importers and exporters, the first quarter of 2025 is not a time for passive observation but for proactive strategy. The confluence of stringent European environmental policies, persistent logistical disruptions in critical sea lanes, and responsive domestic policy shifts demands our full attention. This analysis moves beyond the headlines to dissect the critical developments and equip you with the strategic foresight needed to navigate these turbulent waters.
Factual Summary: The Key Developments of Early January
Our daily roundup reveals a complex tapestry of challenges and opportunities shaping the immediate future of Indian trade. Here are the most significant developments that require careful consideration:
1. EU Releases Preliminary CBAM Data; Compliance Scrutiny Intensifies
The European Commission has reportedly released its first set of preliminary findings based on the initial quarterly reports submitted under the Carbon Border Adjustment Mechanism (CBAM) transitional phase. While specific company data remains confidential, the aggregate report highlights significant reporting discrepancies and data gaps from several trading partners, including submissions from Indian MSMEs in the steel and aluminium sectors. The report signals that the EU will be increasing its scrutiny and offering 'technical guidance' sessions, which is diplomatic language for a final warning before the definitive period begins. This development puts a renewed and urgent focus on accurate carbon emissions accounting for Indian exporters in the covered sectors (cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen).
2. Major Shipping Lines Announce 'Emergency Risk Surcharge' for Red Sea Route
In a move that will directly impact bottom lines, a consortium of major shipping lines, including Maersk and MSC, has announced the implementation of a new 'Emergency Risk Surcharge' (ERS) for all cargo transiting the Bab-el-Mandeb Strait, effective February 1st, 2025. This surcharge, reportedly ranging from $250 to $500 per TEU (Twenty-foot Equivalent Unit), comes on top of already elevated freight rates. The carriers cite escalating security costs and insurance premiums for their vessels. This effectively institutionalizes the higher cost of trading with Europe and the US East Coast, forcing Indian exporters to either absorb the cost or attempt to renegotiate terms with buyers.
3. DGFT Issues Trade Notice on CBAM Hand-holding and PLI Scheme Expansion
Responding to industry feedback, India's Directorate General of Foreign Trade (DGFT) has issued a pivotal Trade Notice. Firstly, it announces the formation of a dedicated 'CBAM Facilitation Cell' to hand-hold exporters, particularly MSMEs, through the complex reporting requirements. This cell will work with industry bodies and develop standardized reporting templates. Secondly, the notice hints at the imminent cabinet approval for the expansion of the Production-Linked Incentive (PLI) scheme to include new sectors, with sources pointing towards toys, furniture, and leather goods. This signals the government's continued focus on boosting domestic manufacturing and export competitiveness in targeted industries.
4. Pharmaceutical and Agri-Exports Show Robust Q3 Growth
On a positive note, preliminary data for the October-December 2024 quarter indicates robust growth in India's pharmaceutical and agricultural exports. Pharma exports, driven by strong demand for generics in Latin America and Africa, grew by an estimated 12% year-on-year. Meanwhile, processed agricultural products, especially ready-to-eat meals and organic spices, saw a 15% surge in demand from the Middle East and Southeast Asia, showcasing successful market diversification efforts by Indian firms.
Implications for Indian Import-Export
Translating these developments into actionable strategy is crucial. Here are the key implications for your business:
- 'Green' Compliance is Now a Hard Business Metric: The EU's CBAM is no longer a future concept; it's an immediate operational challenge. Businesses in affected sectors must treat carbon accounting with the same seriousness as financial accounting. Investing in expertise and technology for accurate emissions tracking is non-negotiable. Failing to do so will result in market access denial or severe financial penalties. Proactive firms can turn this into a competitive advantage by marketing their low-carbon footprint.
- Cost Structures Require Immediate Revision: The new Emergency Risk Surcharge is a direct hit to profitability. Exporters must immediately recalculate their landed cost for European and US East Coast-bound shipments. It's time to open conversations with buyers about price adjustments or a shift in Incoterms (e.g., from CIF to FOB). For importers, sourcing from regions not impacted by this route, like ASEAN, may become more financially attractive.
- Leverage the Government Ecosystem: The DGFT's CBAM Facilitation Cell is a resource that should not be overlooked. Engage with them and your respective Export Promotion Council. Stay informed about the workshops and templates they provide. Similarly, for those in or adjacent to sectors like toys or leather, closely monitor the final announcements on the PLI scheme expansion. Early movers will gain the most significant advantages.
- Diversification is Your Best Insurance Policy: The Red Sea crisis underscores the vulnerability of relying on a single trade route. The success of pharma and agri-exports in alternate markets is a powerful lesson. Actively explore and cultivate relationships in Latin America, ASEAN, and Africa. These markets may offer better margins and lower logistical volatility in the current climate.
- Re-evaluate Supply Chain Timelines: With continued disruptions around the Red Sea, expect longer transit times to become the norm for certain routes. This impacts cash flow and inventory management. Communicate proactively with your buyers about potential delays and build buffer time into your production and delivery schedules to maintain credibility and avoid penalties.
Conclusion: From Reaction to Proaction
The start of 2025 presents a clear message: the era of predictable, low-friction trade is firmly behind us. The twin pressures of regulatory evolution (CBAM) and geopolitical instability (Red Sea) are forging a new, more complex normal. However, for the astute Indian trader, these challenges are matched by opportunities. The government's proactive support systems and the proven success in market diversification offer pathways to resilience and growth. The key is to shift from a reactive to a proactive stance. By embedding sustainability into operations, strategically re-costing supply chains, and intelligently diversifying markets, Indian import-export professionals can not only weather the storm but also chart a course towards a more profitable and sustainable future.
Source: Original