Context

According to a report by the United Nations Conference on Trade and Development (UNCTAD), India’s trade reliance on China and the European Union is rising as global trade is witnessing a marked shift along geopolitical lines.

Is India’s trade Reliance on China and the EU Increasing? UNCTAD Report

• Supply Chain Reset: This comes in the backdrop of major supply chain reset following the pandemic and the Russia-Ukraine war that had sent food and fuel prices to record highs.
• UNCTAD report estimates based on National Statistics:  India’s dependence on China and the European Union (EU) grew by 1.2 per cent while its reliance on Saudi Arabia slid by 0.6 per cent.
  • This came despite India’s efforts to cut reliance on China by implementing its flagship Production-Linked Incentive (PLI) scheme and Quality Control Orders (QCOs) largely to limit entry of cheap Chinese products.
• Shifting Trade Pattern: UNCTAD’s estimates showed a major shift in trade due to the ongoing Russia-Ukraine war. 
  • While Russia’s trade dependence on China surged by a record 7.1 per cent, its reliance on the EU decreased by 5.3 per cent. This was largely due to Russian oil shifting from the EU to China and India. 
  • The US cut reliance on China by 1.2 per cent in 2023 and increased its trade dependence on the EU and Mexico.
• Dependence of an economy on another: It is calculated as the ratio of their bilateral trade over the total trade of the dependent economy. 

• • Change is computed as a four quarter average of this ratio relative to the same period in the previous year.
• Decline in Global trade: The report showed that global trade declined in most sectors, except for pharmaceuticals, transportation equipment, and road vehicles, particularly, electric cars.
  • Among the sectors where the value of trade declined by more than 10 per cent during 2023 are apparel, chemicals, energy metals, office equipment, and textiles.
• Decline in Global Merchandise Trade: The value of global merchandise trade has experienced continuous decline since mid-2022. 
  • Trade in goods is expected to contract by about US$ 1.3 trillion or 5 per cent in 2023 but services trade is expected to gain about $500 billion, or 8%.