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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.

China’s share in India’s imports

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  • 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.

Strategic Implications

  • 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.
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