India\u2019s Minister of Commerce, Mr Piyush Goyal, in the Rajya Sabha lamented the sharp increase in trade deficit with China over the years. Indeed, the trade deficit with China has spiralled, from $0.7 bn in 2000 to $65 bn in 2021. So, how has it risen to that level and what factors contributed to that. Here is a brief look at the details and how India\u2019s trade with China has evolved over the years.<\/p>\n
As per UN\u2019s Comtrade data, India\u2019s trade with China stood at $2.2 bn in 2000 which has risen to over $110 bn in 2021, more than 50 times. However, it has not been a two-way growth but driven largely by imports. (Trade between two nations is equal to sum of imports and exports). While exports have risen 32 times since 1997, imports have risen far more sharply, by 79 times. As a result, trade deficit has increased from $0.4 bn to mind boggling $65 bn, almost 165 times!<\/p>\n
A look at the movement shows that trade was quite balanced till 2005 when exports were $7.2 bn against imports of $10.2 bn leaving a deficit of $3 bn. Deficit ballooned thereafter, to almost $40 bn in 2011, increase of 53% CAGR during 2005-11. The minister\u2019s comment that we must realise how we became so China-dependent, indeed needs to explored. A possible realization of the increasing dependence coupled with the economic downturn around that time led to some re-balancing. While exports rose by 1.6% during 2011-20, imports increased only 0.7%, helping maintain deficit at the same level as 2011. However, it must be noted that were fluctuations in between with deficit going up to $60 bn in 2017.<\/p>\n
With such a rapid increase in imports, China\u2019s share in India\u2019s total imports also rose sharply. While China\u2019s share in both imports and exports were same at 7.2% of India\u2019s global trade in 2005, share of imports from China rose to 12% in 2011 and further to 16% in 2020. On the other hand, India\u2019s exports to China did not increase at the same rate as exports to rest of the world. As a result, share of exports came down to 5.5% in 2011 (from 7.2% in 2005), 4.2% in 2017 but has improved to 5.8% in 2021. China accounted for as much as 43% of India\u2019s total trade deficit in 2020, six times the share of 7.4% in 2005! <\/em><\/p>\n Unfortunately, the years of efforts to manage trade with China has been reversed in 2021 and 2022, possibly, a result of Covid related emergency imports and sharp spike in commodity prices. Imports increased from $59 bn in 2020 to $88 bn in 2021 without much change in exports leading to increase in trade deficit from $40 bn to $ 64 bn. For the first nine months of 2022 (Jan-Sept) also, while exports have declined by 34%, imports increased by 27% leading to trade deficit rising from $44 bn in the nine months of 2021 to $67 bn in 2022. It would be important to see how trade evolves in the years to come with cooling down of commodity prices and unwinding of Covid related requirements.<\/p>\n A look at the details shows that the most important item being imported is commodity code – HS 8517 which includes telephones sets including mobile phones <\/em>& parts. Imports for the product group rose from barely $0.5 bn in 2008 to $8.7 bn in 2014 and as much as $14.7 bn in 2017. The groups accounted for 20% of total imports from China in 2017. With the measures taken to reduce the dependency, imports have declined to $5.8 bn in 2020 but slightly up at $6.6 bn in 2021. Other electronic items such as Integrated circuits, semiconductor devices, PV Cells, automatic data processing machines, together accounted for $15 bn of imports in 2021, almost four times that in 2014. The silver lining is that India also recorded modest export of nearly $1 bn in these items in 2021. If the trend continues and the incentives being provided under PLI succeed, there would be better balance in trade.<\/p>\n Other items imported from China include personal computers & laptops, organic chemicals, fertilizers, Pharmaceuticals & its intermediates etc. Among the basic consumer goods involving no major technology for production are furniture, mattress, glassware, toys, footwear, leather products etc which could be worth about $8 bn on aggregate basis. Even simple machinery items such as bearings, valves, machine tools account for significant imports primary reason for which would price advantage.<\/p>\n A calibrated import curbs is essential to reduce the dependency on China and blunt the trade advantage it derives through a variety of questionable trade practices, subsidies, blocking entry of products to its own market and so on. Imports of electronic items need greater scrutiny because of vulnerability of electronic systems to cyber-attack also. While imports for items such as machinery\/project items, Pharma\/ intermediates would require a longer-term strategy, consumer goods items need to be put through curbs more quickly even if it causes short-term spike in domestic prices. A way to do this is to undertake costing exercise to ascertain the fair value of these products and levy import duty in cases where the imported price is less than the cost estimates.<\/p>\n","protected":false},"excerpt":{"rendered":" India\u2019s Minister of Commerce, Mr Piyush Goyal, in the Rajya Sabha lamented the sharp increase in trade deficit with China over the years. Indeed, the trade deficit with China has spiralled, from $0.7 bn in 2000 to $65 bn in 2021. So, how has it risen to that level and what factors contributed to that. […]<\/p>\n","protected":false},"author":8,"featured_media":18678,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[857],"tags":[],"class_list":["post-14145","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economy","membership-content","access-restricted"],"yoast_head":"\n