Economic Survey flags growing challenges in global trade

Steady growth of exports — merchandise and services — in the first nine months of FY 25 to touch $ 602.6 billion indicates India’s resilience in the midst of global headwinds of economic and trade policy uncertainties, said the Economic Survey 2024-2025.

However, challenges remained due to elevated geo-political risks, high freight costs, and imposition of climate change related non tariff measures by the European Union in the form of the Carbon Border Adjustment Mechanism (CBAM) and European Union Deforestation Regulation (EUDR).

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The CBAM and EUDR were expected to affect $9.5 billion of India’s exports to the EU, which amounted to 9% of India’s exports to the world or 12.9% of India’s exports to the EU.

Further, there was an indication of preference for bilateral trade between countries with similar geopolitical stances, i.e., friend-shoring and nearshoring. There was also an increasing concentration of global trade to favour significant trade relationships.

“The evolving global trade dynamics, marked by gradual shifts towards greater protectionism, require assessing the situation and developing a forward-looking strategic trade road map. By adapting to these trends and leveraging its strengths, India can accelerate its growth and enhance its presence in global trade.”

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Proactive approach

To strengthen its competitiveness and further integrate into global supply chains, India should focus on reducing trade related costs and enhancing export facilitation to create a more vibrant export sector. This proactive approach will help India continue to thrive in an ever-changing global market, the Survey added.

Total imports during April-December 2024 reached $682.2 billion, registering a YoY growth of 6.9%. A more significant increase in overall imports compared to exports led to a rise in the overall trade deficit from $69.7 billion during April-December 2023 to $79.5 billion in the corresponding period of FY25.

Regarding short, medium and long-term measures, the Survey said that the evolving trade stance of a few major economies could affect key Indian export sectors such as chemicals, machinery, textiles, and electronics. It was essential to diversify the export markets, focus on increasing the market share, and position itself as a strategic partner in high-value sectors like biotechnology and semiconductors.

“Strategic technology partnerships would provide opportunities for enhanced cooperation in key areas such as space, semiconductors, quantum technologies and advanced telecommunications.”

The CBAM and EUDR posed twin challenges for countries such as India. There was a need to achieve higher levels of economic development and deal with climate change mitigation and adaptation, the Survey opined.