India’s trade dependency shifts- UNCTAD report
UN Report: India’s Trade Dependency on China and EU Increases Amidst Global Geopolitical Shifts.In the wake of significant supply chain disruptions triggered by the pandemic and the Russia-Ukraine conflict, India’s trade reliance on China and the European Union (EU) has seen a notable uptick, according to a recent report by the United Nations Conference on Trade and Development (UNCTAD).
Despite India’s efforts to diminish its dependence on Chinese imports through initiatives such as the Production-Linked Incentive (PLI) scheme and Quality Control Orders (QCOs), the UNCTAD estimates, based on national statistics, indicate a 1.2 per cent increase in India’s reliance on China and the EU. This shift occurred while India’s dependence on Saudi Arabia experienced a marginal decline of 0.6 per cent.
The report highlights a broader trend of geopolitical realignments shaping global trade patterns. It suggests that while the geographical proximity of international trade has remained relatively stable over the last two years, there has been a noticeable rise in the political proximity of trade since late 2022. This indicates a preference for bilateral trade between countries with similar geopolitical stances. Moreover, there has been a growing concentration of global trade, although this trend moderated towards the end of 2023.
The ongoing Russia-Ukraine conflict has also significantly impacted global trade dynamics. Russia’s trade dependence on China surged by a record 7.1 per cent, while its reliance on the EU declined by 5.3 per cent. This shift was driven by Russia’s redirection of oil exports from the EU towards China and India. Chinese customs data revealed a record two-way trade of $240 billion between China and Russia in 2023. Additionally, Russia increased its imports of Chinese goods following the exodus of major US and EU companies from the Russian market post-war.
Meanwhile, the United States managed to reduce its reliance on Chinese imports by 1.2 per cent in 2023, opting instead to increase trade dependence on the EU and Mexico.
The UNCTAD report indicates a widespread decline in global trade across most sectors, with exceptions in pharmaceuticals, transportation equipment, and electric vehicles. Sectors experiencing a significant decline of over 10 per cent in trade value during 2023 include apparel, chemicals, energy metals, office equipment, and textiles.
Overall, the report forecasts a contraction of approximately US$1.3 trillion, or 5 per cent, in global trade in goods for 2023. However, services trade is expected to see a gain of about $500 billion, representing an 8 per cent increase.