India has experienced limited success in leveraging the global "China Plus One" strategy, with nations like Vietnam, Thailand, Cambodia and Malaysia outperforming it as beneficiaries. This observation comes from the latest Trade Watch Quarterly report published by Niti Aayog, which highlights both challenges and opportunities for India in global trade dynamics.

The report notes that China remains the main competitor in several critical product categories, highlighting the urgent need for India to improve its competitiveness. “China is the main competitor in several key product categories highlighting the need for India to enhance competitiveness in these products,” the report stated.

The "China Plus One" strategy has emerged as multinational corporations sought to diversify their supply chains amidst the United States' stricter export controls and higher tariffs on Chinese goods. These measures aim to limit China's growth and technological advancements, causing a global shift in manufacturing.

Countries like Vietnam and Thailand have managed to capture this shift effectively, thanks to factors like lower labour costs, simplified tax structures, lower tariffs and a proactive approach to Free Trade Agreements (FTAs). However, India has not yet fully tapped into this potential.

“India has seen limited success so far in capturing the China Plus One strategy,” the Trade Watch Quarterly report noted. It added that India's share in global trade for labour-intensive sectors has been declining despite significant resource endowments.

While India has a strong presence in developed markets such as the USA, UK and Germany, the report underlines opportunities in emerging markets. “India has a solid foothold in developed markets like the USA, UK and Germany, across top product categories but there are opportunities to explore emerging markets,” the report highlighted.

The report also flagged the EU's upcoming Carbon Border Adjustment Mechanism (CBAM) as a significant challenge for India. Set to be implemented in January 2026, CBAM aims to prevent carbon leakage by imposing tariffs on high-emission imports such as cement, iron and steel, aluminium, fertilisers, electricity and hydrogen.

For India, the iron and steel sector—comprising 23.5 percent of its exports to the EU—will face the highest exposure. "Indian firms may incur tariffs of 20-35 percent leading to higher costs, reduced competitiveness, and lower demand in the EU market. Additionally, compliance costs will rise due to the need for detailed emissions reporting," the report cautioned.

Given that the EU accounted for 17.4 percent (USD 76 billion) of India’s total exports in 2023-24, these developments pose significant risks to India’s trade prospects.

The report concludes that India must prioritise enhancing its domestic manufacturing capabilities, particularly in high-tech industries, while also focusing on diversifying its export markets and addressing challenges like CBAM. A strategic push toward competitiveness, policy simplifications, and market exploration will be critical for India to better position itself in global trade.