The Indian economy faces increasing headwinds as global trade slows, according to a recent report by the Global Trade Research Initiative (GTRI). The analysis, spurred by data from the World Trade Organisation’s (WTO) Goods Trade Barometer, suggests that a combination of escalating global trade policy shocks and rising domestic costs are making India increasingly vulnerable to weakening international demand. This slowdown is already visible in India’s export performance, raising concerns for the coming year.
India’s Economic Vulnerability to Global Trade Slowdown
The WTO’s latest Goods Trade Barometer indicates a significant cooling in global merchandise trade following an earlier surge driven by tariff adjustments. While early 2024 saw robust demand, particularly for goods related to Artificial Intelligence (AI), this momentum is now waning. GTRI highlights that the initial boost from “front-loading” – businesses accelerating purchases to pre-empt tariffs – is fading, and protectionist measures are gaining traction worldwide.
This isn’t a complete standstill, but a deceleration. Most trade components, including electronics, air freight, container shipping, and automobiles, are still showing expansion, but at a reduced rate. Notably, agricultural raw materials are already performing below their usual trend, signaling broader economic pressures.
WTO Warnings and Rising Tariffs
The WTO’s assessment is stark: while growth persists for now, the looming threat of increased tariffs and policy uncertainty could significantly erode global trade volumes in 2026. This warning is particularly relevant for export-oriented economies like India, which rely on consistent international demand. The report underscores the fragility of the current global economic landscape and the potential for rapid deterioration.
Declining Indian Exports Reflect Global Trends
India’s export figures for October 2024 mirror this global deceleration, but with potentially more severe consequences. Merchandise exports experienced a year-on-year decline of 11.8%, impacting 15 out of 20 major export markets. This widespread decrease highlights the vulnerability of Indian exporters to the shifting global economic climate.
Several key trading partners have shown significant weakness. Shipments to the United States decreased by 8.6%, the UAE by 10.2%, the UK by a substantial 27.2%, Italy by 27.7%, and the Netherlands by 22.8%. These declines demonstrate a broad-based weakening of demand across crucial markets.
Asia-Pacific Supply Chain Disruptions
Furthermore, sharp drops in exports to Singapore and Australia point to a sudden loss of momentum within Asia-Pacific supply chains. This is a concerning development, as the region has been a key driver of global trade growth in recent years. Disruptions in this vital network could have cascading effects on the Indian economy, impacting various sectors. International trade relies heavily on these interconnected supply chains.
Limited Growth and Domestic Cost Pressures
While some destinations, notably Spain and China, have shown positive growth in Indian exports, this growth is largely driven by energy and commodity exports. This reliance on these sectors, rather than a broad-based increase in manufacturing exports, suggests limited underlying strength in the Indian export sector. This dependence on commodities makes the economy susceptible to price fluctuations and shifts in global demand.
Additionally, GTRI emphasizes that India’s economic vulnerability isn’t solely due to external factors. Rising domestic cost pressures are compounding the challenges posed by the slowing global economy. These internal pressures, including inflation and increasing input costs, are eroding the competitiveness of Indian exports. Economic policy needs to address these domestic issues to mitigate the impact of global headwinds.
The Impact of Protectionism
The resurgence of protectionist policies globally is a major concern. Increased tariffs and trade barriers restrict market access for Indian exporters, further exacerbating the slowdown in export growth. This trend necessitates a proactive approach from the Indian government to negotiate favorable trade agreements and diversify export markets. Export performance is directly linked to the global trade environment.
Navigating the Challenges Ahead
GTRI’s analysis paints a clear picture: while a complete collapse in trade isn’t imminent, a significant loss of traction is evident. The convergence of adverse global trade policies and escalating domestic costs is exposing the Indian economy’s vulnerability to slowing world demand.
Addressing this requires a multi-pronged strategy. India needs to focus on strengthening its manufacturing sector, diversifying its export markets, and implementing policies to control domestic cost pressures. Proactive engagement in international trade negotiations and a commitment to free and fair trade are also crucial.
The current situation demands careful monitoring and strategic intervention to safeguard India’s economic growth and ensure its resilience in the face of evolving global challenges. Staying informed about global trade trends and adapting to changing market conditions will be paramount for Indian businesses and policymakers alike.
