Growing trade deficit with China

Context (TH): China’s share of India’s industrial goods imports has risen from 21% to 30% over 15 years, according to a report by the Global Trade Research Initiative (GTRI).
GTRI defined industrial goods by excluding agriculture, minerals, petroleum and jewellery products.
India’s imports from China crossed $101 billion in 2023-24 from about $70 billion in 2018-19.
Goods imports from China have risen 2.3 times faster than India’s total imports over 15 years.
China is the top supplier in eight major industrial sectors, including machinery, chemicals, pharmaceuticals, and textiles.
It is contrary to popular perception that Chinese imports are high only in the electronics sector.

India’s total merchandise imports stood at $677.2 billion in 2023-24, of which 15%, or $101.8 billion, were sourced from China.
Iron, steel, and base metal imports showed a lower dependence on China, with just a 17.6% share of inflows coming from the neighbouring nation.
Half of the imports from China consist of capital goods and machinery, indicating a critical need for focused research and development in this area.
Intermediate goods like organic chemicals, Active Pharmaceutical Ingredients, and plastics, which represent 37% of imports, show a pressing need for upgrading these industries.
In 2005, India exported $10 billion worth of goods to China and enjoyed a trade surplus with its neighbour between 2003 and 2005.
After 2005, Chinese goods dominated trade flows, steadily magnifying the trade deficit for India.

Reasons behind the trade deficit

A narrow basket of commodities, mostly primary, that India exports to China.
Market access impediments for most Indian agricultural products and the competitive sectors, such as pharmaceuticals, IT/ITES, etc.
The domestic industry, especially in the pharmaceutical sector, opposes the removal of concessions on customs duties from China. The solar energy and toy industries also opposed similar moves.
Even the Production-Linked Incentive (PLI) scheme may have a significant Chinese presence with Chinese supply chain partners and service providers.

Implications are ‘profound’ and affect not only economic but national security dimensions.
Stimulating domestic industries and reducing dependency on single-country imports, especially from a geopolitical competitor like China, is necessary.
Impact on geoeconomics: The use of economic instruments to promote and defend national interests and to produce beneficial geopolitical results by China can not be ruled out.
Weaponisation of economy: The German think tank Mercator Institute for China Studies identified around 130 cases of coercive behaviour by China from 2010 to June 2023.
- For example, last year, China suspended imports of Japanese seafood following the release of treated wastewater from the Fukushima nuclear power plant.