India’s Trade Growth Faces Global Challenges
India’s goods and services trade showed impressive momentum in the December quarter, according to a recent report from the United Nations Conference on Trade and Development (UNCTAD). However, the report warns that shifts in U.S. policy and ongoing geopolitical tensions could pose significant risks to global trade. Additionally, developing countries, including India, are grappling with high tariffs that restrict market access for their exports.
Trade Performance in South Asia
The UNCTAD’s latest Global Trade Update highlights that South Asia, including India, is experiencing some of the highest tariffs globally, averaging around 4% for exports and 8% for imports. Despite generally lower tariffs in developed nations, these countries maintain “tariff peaks,” with duties exceeding 100% on several agricultural products. This situation places South Asia at a disadvantage, as it struggles with both high tariffs and limited access to lucrative markets.
The report also notes that developing countries often impose higher duties on imports to protect emerging industries. For many of these nations, tariffs serve as a crucial revenue source, contributing 10-30% of government income. This protective stance complicates trade negotiations and can hinder overall trade growth.
India and China Lead Trade Growth
India and China have emerged as leaders in trade growth during the December quarter, with India reporting a 7% increase in goods exports and China a 5% rise. The report emphasizes that developing nations, particularly India and China, are outpacing many developed countries, which are experiencing trade contractions. In 2024, India’s exports of goods and services reached $817.4 billion, a 6.3% increase from the previous year, while global trade grew by only 3.7%.
South Africa also saw significant growth, with a 13% rise in services exports, while India’s services exports grew by 3% during the same period. This robust performance underscores the resilience of developing economies in the face of global trade challenges.
Rising Trade Deficits
Despite the positive growth in exports, India’s trade deficit remains a concern, particularly with China and Russia. In 2024, India recorded a trade deficit of $103 billion with China, ranking seventh among its bilateral trading partners. The deficit with Russia reached $65 billion, placing it twelfth. The widening trade gap with China is attributed to declining exports, while the increase in the deficit with Russia is linked to substantial imports of crude petroleum as Indian oil companies seek cost-effective sources amidst international sanctions.
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