UPSC Syllabus Topic: GS Paper 2 – International relation.
Introduction
India–Africa economic relations have gained renewed momentum due to high-level political engagement and changing global trade conditions. India’s heavy dependence on the U.S. and EU markets, combined with growing uncertainty in these regions, has highlighted the need for market diversification. Africa’s rising economic relevance and India’s target to double bilateral trade by 2030 make deeper, more structured economic engagement both timely and necessary. Unlocking the potential of India–Africa economic ties.
Current Status of India–Africa Trade Relations
- Trade scale: India is Africa’s fourth-largest trading partner, with bilateral trade close to $100 billion, reflecting steady growth but limited global standing compared to major competitors.
- Export profile: In FY24, India exported $38.17 billion worth of goods to Africa. Key destinations included Nigeria, South Africa, and Tanzania, showing concentration in a few markets.
- Product mix: India’s exports mainly consisted of petroleum products, engineering goods, pharmaceuticals, rice, and textiles, indicating reliance on traditional and mid-value sectors.
- Import share: Africa sourced only around 6% of its total imports from India in 2024, highlighting India’s limited penetration despite long-standing ties.
- China’s dominance: China’s bilateral trade with Africa exceeded $200 billion, with 21% of Africa’s imports coming from China. Nearly 33% of these imports fell under HSN 84 and 85, reflecting strong dominance in machinery and electrical equipment.
Challenges to India–Africa Trade Relations
- Strategic gaps: India’s engagement has suffered from weak institutional continuity, with a nearly decade-long gap since the last India–Africa Forum Summit, reducing sustained strategic dialogue.
- Security risks: Political instability, military coups, and armed conflicts in countries such as Ethiopia, Sudan, and the Central African Republic create uncertainty and discourage long-term investments.
- Logistics limits:
- Limited direct shipping/air links between Indian and African hubs increases dependence on multi-hop routes and adds delays, warehousing costs, and uncertainty.
- Africa’s fragmented transport and logistics systems, shaped by colonial-era extraction models, raise transaction costs and restrict regional value chain development.
- Debt stress: African debt-to-GDP ratios have doubled from 30% to 60% in under a decade, shrinking fiscal space. India’s $12 billion concessional credit support remains insufficient for large development needs.
- Investment distortion: India’s Africa investment numbers are inflated by Mauritius routing, often linked to tax avoidance. This hides the true level of productive investment on the ground.
- Geopolitical pressure: China’s SOE-led investment model enables rapid execution of large infrastructure projects, while Western countries retain strong aid and security ties, intensifying competition for India.
- Firm-level barriers: Indian firms face bureaucratic hurdles, high financing costs, logistics challenges, and political instability. India’s growing focus on the Indo-Pacific also diverts attention from Africa.
Way Forward
- Five Strategic Pillars for Deepening India–Africa Economic Ties
- Trade agreements: India should remove trade barriers by negotiating preferential trade agreements and comprehensive economic partnerships with African regional blocs and major economies.
- Value addition: India must shift from low-value commodity exports to value-added trade and joint manufacturing, using incentives offered by African governments more effectively.
- Dual advantage: Manufacturing in Africa allows Indian firms to retain preferential U.S. market access while tapping Africa’s expanding consumer and industrial demand.
- MSME finance: Africa offers strong opportunities for MSMEs, unlike Western markets. Scaling up Lines of Credit and improving access to trade finance is critical.
- Logistics services: Reducing freight costs through port modernisation, hinterland connectivity, and maritime corridors is essential. India must also scale up services trade in IT, healthcare, and skill development, where policy support remains weak.
- Role of the Indian Public Sector
- Investment lead: Public sector units should lead investment in African manufacturing, agro-processing, infrastructure, renewable energy, and critical and emerging technologies. This can create stable anchors for long-term projects.
- Mineral focus: Public sector units should especially step up in mining and mineral exploration. This can deepen strategic economic presence and support durable partnerships beyond short-term trade.
Conclusion
India’s engagement with Africa must evolve beyond limited trade expansion toward durable economic partnerships. Addressing structural challenges, strengthening value-added trade, expanding services, and improving finance and logistics are essential. Public sector-led investments can play a decisive role in anchoring India’s long-term economic presence. With timely recalibration, Africa can become central to India’s global economic ambitions.
For detailed information on India-Africa Relationship read this article here
Question for practice:
Discuss how India can unlock the potential of its economic ties with Africa by addressing existing trade challenges and strengthening long-term partnerships.
Source: The Hindu
