The Economic Survey 2025-26 has documented what it calls a “resurgence in friendshoring in CY 2025,” referring to the trend of countries restructuring supply chains to favor trade with politically-aligned partners over purely cost-based sourcing decisions.
The Survey, released on January 28, cites data from UNCTAD showing that after a slight decline in CY 2024, friendshoring patterns have strengthened again in 2025, with implications for sectors including automotive that depend on global supply chains.
The Survey discusses friendshoring as part of a broader pattern where “countries are increasingly focusing on emerging strategic industries such as renewable energy, electric vehicles, critical minerals, semiconductors, and AI” with these sectors “viewed as critical for economic growth, national security and supremacy.”
In this context, friendshoring represents a shift from efficiency-driven global supply chains toward what the document calls “strategic decoupling” and supply chains “restructured to ensure technological autonomy and independence.”
While the Survey does not provide detailed data on friendshoring volumes or specific country pairs, it notes that UNCTAD data shows the trend “following a slight decline observed in CY 2024” has seen renewed momentum in 2025.
This timing is relevant given that 2025 saw increased trade policy activism from major economies and heightened focus on supply chain security.
The Survey does not explicitly categorize India within particular “friend” groupings for trade purposes, but discusses how India is responding to the changing global trade environment.
It notes that India’s “diversification of export destinations and import sources” has “strengthened resilience amid rising protectionism and tariff uncertainties.” This diversification strategy appears to be India’s approach to managing friendshoring dynamics—building trade relationships across multiple regions rather than depending heavily on any single partner or bloc.
Trade Agreement Context
The Survey discusses India’s recent free trade agreement with Oman and notes the broader pattern of India pursuing trade agreements with “like-minded partners.”
The Oman FTA provides duty-free access for 99.38% of India’s exports with immediate tariff elimination on 97.96% of tariff lines. Such agreements may represent India’s participation in friendshoring—strengthening trade ties with partners based on strategic relationships alongside economic considerations.
The Survey distinguishes between nearshoring (moving production closer to end markets geographically) and friendshoring (choosing partners based on political alignment).
It notes that both trends are visible in global trade patterns, though friendshoring appears to be the stronger trend in 2025 based on the UNCTAD data cited.
For automotive, this means companies may prioritize political reliability over both cost (offshoring) and distance (nearshoring) in supply chain decisions.
The friendshoring trend affects where companies choose to locate production. Countries considered “friends” by major markets may attract more investment than those with uncertain political relationships, regardless of cost advantages.
India’s democratic system and strategic partnerships with major economies potentially position it favorably for manufacturing investment seeking to friendshore production.
Friendshoring may affect patterns of technology collaboration and transfer. The Survey notes that countries are becoming more selective about “securing critical minerals and technological resources” with national security considerations.
For Indian automotive companies seeking technology partnerships or attempting to move up the value chain, whether potential partners view India as a “friend” affects access to technology and joint development opportunities.
The Survey discusses how India faces “an effective export tariff rate of 50 per cent on goods exports to the United States” due to reciprocal and penal tariffs, though some moderation has been achieved.
If friendshoring were fully operational in US-India trade, such high tariffs would be inconsistent with treating India as a preferred partner. The high tariff rates suggest friendshoring has limits and that trade policy remains transactional.
Diversification as India’s Strategy
Rather than explicitly joining a “friend” bloc, India’s strategy as described in the Survey appears to be diversification—building trade relationships across multiple regions including the US, Europe, Middle East, Africa, and ASEAN.
This hedging strategy may provide more flexibility than formal alignment with a particular grouping, allowing India to benefit from friendshoring trends without limiting options.
The Survey notes that modern supply chains are complex with multiple stages across countries. Friendshoring such supply chains is more complicated than moving final assembly, as it requires entire ecosystems of suppliers to relocate or reorganize.
For automotive, where a single vehicle contains thousands of components from multiple tiers of suppliers across countries, friendshoring the entire supply chain would be a multi-year undertaking.
The Survey discusses Quality Control Orders and standards without linking them to friendshoring, but regulatory standards can function as a form of trade barrier that reinforces friendshoring patterns.
If countries recognize each other’s safety and quality certifications (as partners might), while subjecting others to more stringent testing, this creates implicit friendshoring through regulatory mechanisms.
Friendshoring represents a shift from optimizing for efficiency (lowest cost production regardless of location) toward optimizing for resilience (lower risk even at higher cost).
The Survey acknowledges this tradeoff, noting that “in a more uncertain world, risk is unavoidable. The advantage lies in managing it better.”
While the Survey does not discuss investment screening mechanisms, friendshoring trends are often accompanied by governments screening inbound investments for national security concerns.
For automotive FDI flows into India, and for Indian companies’ overseas investments, such screening processes add complexity to what were previously commercial decisions.
If friendshoring becomes entrenched, it implies a more fragmented global economy with parallel supply chains serving different political blocs. The Survey’s documentation of this trend suggests policymakers view it as likely to persist rather than as a temporary phenomenon.
For automotive companies making long-term production and sourcing decisions, this means planning for a world where political relationships matter as much as commercial factors.
Friendshoring may lead to development of regional production hubs serving specific markets. For India, this could mean positioning as a hub for markets viewing India as a reliable partner, while accepting limited access to markets aligned with competitors.
The Survey’s emphasis on export diversification suggests awareness of this possibility and efforts to maintain access across multiple regions.
The Survey indicates that friendshoring is particularly pronounced in “strategic industries such as renewable energy, electric vehicles, critical minerals, semiconductors, and AI.”
Traditional automotive sectors may face less friendshoring pressure than advanced technology segments like electric vehicles and autonomous driving systems that have dual-use implications.
Automotive Sector Implications
For India’s automotive sector, friendshoring trends have several implications:
Export markets: As countries like the United States and European nations prioritize sourcing from “trusted” partners, India’s position as a democratic market economy could provide advantages over some competitors.
Component sourcing: The Survey notes that “perceptions of geopolitical risk” are driving “diversification of critical minerals, telecom infrastructure goods.” For automotive, this affects sourcing of components, particularly those with embedded electronics or critical materials.
Investment flows: The Survey separately notes that the automobile sector is among top recipients of FDI equity inflows, suggesting foreign automakers may be positioning India as part of their friendshored supply chain strategy.
While the Survey does not use the term “China Plus One,” it discusses how supply chains “are being restructured to ensure technological autonomy and independence” and notes China’s use of export controls on “certain dual-use item exports to Japan, including materials crucial to the automotive industry.”
These developments suggest friendshoring is partly about reducing dependence on China for critical inputs, with implications for where automotive companies source components.