International Trade: India's Catching Up

While the Covid-19 pandemic and its disruptive effect on global supply chains have shone a light on the drawbacks and vulnerabilities of a globalized world, it is undisputed that international trade is a key ingredient to a country’s economic development, as there is much to be gained from openness to foreign markets and investment.

Over the past decades, the importance of international trade to the global economy has been growing, as globalization progressed and international corporations began sourcing materials and labor from all around the world. According to World Bank estimates, the global trade-to-GDP ratio, i.e. total trade volume as a share of gross domestic product, has grown from 37 percent in 1980 to 56 percent in 2021, with high-income countries having an even higher ratio of more than 60 percent.

While still trailing high-income countries and the global average in terms of trade openness, the importance of international trade to the Indian economy has grown steadily over the past four decades. Hovering between 12 and 15 percent throughout the 1980s, the country's trade-to-GDP ratio climbed from 15 to 27 percent between 1990 and 2000, exceeded 50 percent from 2011 to 2013 before falling back to 45 percent in 2021. As the following chart, India closely mirrors the global fluctuations in trade levels, while gradually closing the gap to the global average.