Trade Openness: Where India Stands Interationally

raquelgoulartra
Aug 1
2 min read

This article is published in collaboration with Statista

by Felix Richter

While the last few years have served up several reminders of the drawbacks and vulnerabilities of a globalized world - just think of the trade and supply chain disruptions caused by Covid-19, the Russia-Ukraine war or, more recently, the uncertainty over U.S. tariffs, it is widely undisputed that international trade is a net positive, 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 39 percent in 1980 to 57 percent in 2024, with many high-income countries having an even higher ratio of trade to GDP.

For India, the importance of international trade has also grown steadily over the past four and a half decades. After 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 for the first time in 2008 and peaked at 56 percent in 2012. In 2024, India's trade-to-GDP ratio stood at 45 percent, ahead of China (37 percent) and the United States (25 percent), but far behind the EU (92 percent) and the global average (57 percent).

While the trade-to-GDP ratio is a widely used indicator of the relative importance of international trade to the economy of a country, it does have its limitations. First of all, it makes no difference between imports and exports, as it takes into account total trade volume, i.e. the sum of both. That means, a country running a large trade deficit can have the same trade-to-GDP ratio as a country with a large trade surplus. Furthermore, and this is more relevant to India, large economies tend to have lower ratios than smaller ones, despite moving large trade volumes. Take the U.S. and China for example: while one is the world's largest importer and the other is the world's largest exporter, both countries have a relatively low trade-to-GDP ratio, due to the sheer size of their respective economies. Looking at similar-sized economies in terms of GDP, India's trade-to-GDP ratio is roughly the same as Japan's but significantly lower than Germany's - a country whose economy is highly reliant on exports.

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