India's trade dependence on EU, China sees spike: UNCTAD report

The increase in dependence comes at a time when the country is trying to reduce its imports from China and other countries by putting more focus on manufacturing goods locally

India’s dependence for trade on the European Union (EU) and China is rising as global trade has seen a restructuring along the geopolitical lines in the past two years, according to a report by the United Nations Conference on Trade and Development (UNCTAD).

According to the UNCTAD estimates, based on national statistics, India’s reliance on the EU and China rose by 1.2 percent annually in 2023, while it declined in the case of Saudi Arabia by 0.6 percent.

The increase in dependence comes at a time when the country is trying to reduce its imports from China and other countries by emphasising manufacturing goods locally, backed by schemes, such as production-linked schemes (PLI) and Quality Control Orders (QCOs).

According to the report, this supply chain shift has happened following the Covid-19 pandemic and the Ukraine-Russia war, which led to a record increase in prices of food and fuels.

“During the last two years, the geographical proximity of international trade has remained relatively constant, showing minimal nearshoring or far-shoring trends. However, since the latter part of 2022, there has been a noticeable rise in the political proximity of trade.

This indicates that bilateral trade patterns have been favouring trade between countries with similar geopolitical stances (a pattern generally referred to as friend-shoring), it further said.

At the same time, the report also noted that there has been an increasing concentration of global trade to favour major trade relationships, although this trend has softened in the last quarter of 2023.

The war has pushed Russia more towards China as its dependence on the latter grew by over 7.1 percent. A major reason for the growing dependence has been oil, which was imported heavily by China and India after the EU reduced its share.

On the other hand, Ukraine’s dependence on the EU rose by 5.8 percent, while Russia’s declined by 5.3 percent.

Meanwhile, the US also saw its dependence on China reduce by 1.2 percent. However, the UK saw its reliance on the EU jump by 1.6 percent.

In terms of sectoral data, trade decline was reported for most sectors except for pharmaceuticals, transportation equipment, and road vehicles, which received a boost from the sale of electric vehicles, the report said.

The report further noted that the value of global merchandise trade has experienced continuous decline since mid-2022. However, the trade in services maintained growth throughout most of the period. “Overall, the global trade update projects that global trade in 2023 will amount to approximately $31 trillion, contracting by close to $1 trillion (or 3 percent) compared to the record high of 2022,” the report said.