India’s Trade Reliance on China and the EU Is Rising: UNCTAD

This is despite India’s efforts to cut its reliance on China through initiatives such as the Production-Linked Incentive (PLI) scheme and Quality Control Orders. While PLI is aimed at boosting local production, the latter largely limits entry of cheap Chinese products in the country.

“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,” the UNCTAD report said.

“This indicates that bilateral trade patterns have been favouring trade between countries with similar geopolitical stances. Concurrently, 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 report said.

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%, its reliance on the EU slid by 5.3%.

“This was largely a result of Russian oil shifting from the EU to China and India. Chinese custom data showed that China’s two-way trade with Russia in 2023 had hit a record $240 billion. Russia had also increased purchasing Chinese goods when major US and European Union companies began exiting Russia after the war,” it said.

Interestingly, the US managed to cut reliance on China by 1.2% in 2023, it said. It added that the US increased its trade dependence on the EU and Mexico.

The dependence of an economy on another 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, the report said.