Global tensions could limit scope of trade rebound: Economic Survey

The resilience of global trade is being tested by disruptions on two of the world’s leading shipping routes, the Suez Canal and the Panama Canal, according to the Economic Survey 2024.

The Suez Canal handles about 12% of global trade and almost a third of container shipping between Asia and Europe. The diversion of maritime traffic from the Red Sea and around the Cape of Good Hope, mainly due to the fallout of the Israel-Hamas conflict, has added 10 days to journeys and increased fuel costs.

The Panama Canal, which handles 6% of global trade and more than 70% of traffic destined for or originating from the US, is currently operating at partial capacity due to freshwater shortages, and restrictions are likely to remain for some time, the survey said.

Though global shipping costs returned to pre-pandemic levels by the middle of 2023, container shipping rates have risen again. “Extended detours around the Cape of Good Hope have led to a significant surge in ocean freight rates, reaching up to USD10,000 per 40-foot container,” the survey said.

Moreover, the Suez Canal Authority has declared a hike of 5% to 15% in transit fees for ships passing through the Panama Canal.

The Economic Survey also pointed to the global economy being buffeted by the Russia-Ukraine conflict, tensions in the Middle East and the Red Sea crisis, which have caused supply dislocations in several commodities and a rise in inflation in many countries. Elections in 64 countries and the European Union have added to policy uncertainty for the global economy, especially in the context of international trade and immigration policies.

“Foreign investments, which drive international trade and commerce, have slowed down recently due to these uncertainties, higher interest rates in the developed world, and the pursuit of active industrial policies by developed countries,” the survey said.

While the latest report by UNCTAD.12 presents evidence of a rebound in global trade in 2025, the Economic Survey cautioned this could be affected by factors by an increase in food and energy prices.

According to the UNCTAD report, global trade trends turned positive in the first quarter of 2024, with the value of trade in goods increasing by around 1% quarter-on-quarter and services by about 1.5%. This growth was primarily driven by increased exports from China (9%), India (7%) and the US (3%).

“However, geopolitical tensions and policy uncertainty could limit the scope of any trade rebound. While export growth is expected to improve in many economies as external demand for goods picks up, food and energy prices could again spike due to geopolitical events and climate disturbances,” the survey said.

Restrictive trade practices adopted by many countries are also leading to higher prices as supply chains have become increasingly complex, it added.

At the same time, the Economic Survey presented some product-specific success stories in exports in sectors such as defence, toys, footwear and smartphones.

India’s defence production grew from ₹74,054 crore in FY17 to ₹108,684 crore in FY23, boosting defence exports. Between 2015 and 2019, India was the world’s second-largest arms importer. But India has now transitioned from an arms importer to become one of the top 25 arms exporters. This has occurred due to the efforts of both the private sector and defence public sector undertakings (DPSUs). The number of export authorisations issued to the defence exporters has gone up from 1,414 in FY23 to 1,507 in FY24.

About 100 domestic companies are exporting a range of defence products and equipment such as Dornier-22 aircraft, artillery guns, BrahMos missiles, Pinaka rockets and launchers, radars, simulators and armoured vehicles.

In the field of toys, India relied on China for 76% of imports for a decade. But India’s import bill for Chinese toys has fallen from $214 million in FY13 to $41.6 million in FY24. India is the world’s second largest producer of footwear after China, and now accounts for 2. 2% of global exports.

In the smartphones sector, FY20 marked the first time domestic production exceeded domestic demand. A 42.2% increase in exports in FY24, on a year-on-year basis, enabled smartphones to rank among India’s top five export items. India also became the world’s sixth largest smartphone exporter in 2022, up from the 23rd position in 2014.

The Economic Survey said that amid the prevailing geopolitical dynamics, India is expected to benefit from its broad and diversified trade relationships with Asia, Europe and the US.

India is also gaining market share in global exports of goods and services. Its share in global exports of goods was 1.8% in FY24, against an average of 1.7% during FY16-FY20. Similarly, its share in global exports of services rose to 4.3% in FY23 from an average of 3.3% during FY16-FY20.